Weekly Economic Trends and Indicators

As 2024 draws to a close, it is time to look back on the year that was and look forward to 2025. Overall, the national economy performed very well in 2024, and the outlook for 2025 is similarly positive. The Quad Cities economy experienced some challenges this year, but there is reason for optimism as labor market conditions are now starting to improve once again.

This year may go down as the year when the naysayers finally had to admit that the U.S. economy avoided a recession and achieved a “soft landing” after a long period of Federal Reserve interest rate hikes. Productivity growth has been the key to this success. Nonfarm business productivity has increased at roughly a 2% rate over the past year, which has allowed the economy to grow faster with less upward pressure on inflation.

The importance of productivity growth cannot be overstated. If productivity had not grown at this rate, inflation would have been even slower to come down, forcing interest rates higher and greatly increasing the chance of a recession.

In contrast, while overall productivity rose significantly, manufacturing productivity increased by only 0.6% over the last year. That difference encapsulates the struggle that manufacturing has faced nationwide this year. Manufacturing output has increased less than overall output, and the strong dollar has weakened overseas demand for manufactured goods.

Real GDP growth for the fourth quarter is expected to be about 3.1% according to the Atlanta Fed GDPNow forecast. That would bring the growth rate for the year to about 2.7%, which is a very respectable showing, just slightly lower than 2023.

Inflation also improved this year with the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, falling as low as 2.1% (12-month inflation rate) in September before creeping back up to 2.4% in November. The Consumer Price Index (CPI), which often reads a little higher, stood at 2.7% in November. These numbers, while quite impressive compared to their 2022 levels, are still above the Fed’s target of 2%. While many analysts expected the Fed to start interest rate cuts earlier in the year as 12-month inflation rate started to go under 3%, the Fed waited until September, mainly because the labor market had been holding up better than expected.

By the fall, this had started to change, however. While job growth in the first half of 2024 was only slightly slower than in 2023. Job growth in the second half saw more significant slowing. Four out of the last six months have had net job gains of less than 150,000 whereas only one month out of all of 2023 was that low. This, along with the 12-month PCE inflation bottoming out at 2.1% in September, was enough to get the Fed started bringing interest rates down.

However, as 2024 draws to a close, doubts remain, especially among bond traders, about whether inflation is really under control as much as we think. The 10-year yield remains stubbornly high, as do mortgage rates. As a result, the pace of the Fed’s rate cuts is likely to slow. While many could benefit from lower rates, this is also a sign that growth is still quite robust going into 2025.

Next week: 2024 in Review, Part 2 (QC economy)