Latest / Market Pulse / Economic Outlook 2025: Inflation, Jobs, and Market Trends
Transcript
- Dave Sojka (00:00): I'm your host, Dave Sojka, a member of the Equifax Advisory team. Our group analyzes economic trends, leveraging data and analytics to provide industry insights and strategic recommendations. Our goal is to support clients and navigating economic uncertainty, while identifying opportunities for growth in the consumer credit space. As President Trump settles into office businesses, economists and consumers are closely watching how his flurry of activity will shape both the US and global economy. While much remains uncertain, we do know this, the US economy remains strong. Global economic relationships are shifting in response to potential tariffs, and the Federal Reserve policy has so far remained steady To help us make sense of it all, we're joined by Shandor Witcher, an economist with Moody's Analytics. Shandor is a frequent speaker on national and regional economic trends with expertise in commercial real estate, single family housing, and consumer credit. Shandor, thanks for being here today, especially after your hometown. Eagles just won the Super Bowl last night. Shandor Whitcher (01:12): Oh, indeed. Dave Sojka (01:13): First question, are you a football fan? Shandor Whitcher (01:16): I am indeed. I, I might even sound a little hoarse from yelling Go Birds! Last night. Dave Sojka (01:21): Okay. And then the second one, one I think that our audience wants to know, did you climb any light poles? Shandor Whitcher (01:25): I didn't, but I watched a couple and that's, that's good enough for me, . Dave Sojka (01:30): Well, congrats. It was very, I'm sure, very a very fun experience being an Eagles fan. So, Shandor Whitcher (01:36): Best Super Bowl I've ever seen. Dave Sojka (01:40): There's a lot to cover. So let's just kind of dive in. One of the biggest concerns for consumers right now is inflation management. Where do things stand? Shandor Whitcher (01:50): Yeah, thanks, Dave. Yeah, so inflation is cooled quite a bit from its peak. December's data gave both consumers and policymakers a bit of breathing room. So the overall CPI rose 0.4% last month, but nearly half of that increase was due to a spike in energy prices, which tends to be much more volatile. So if we strip out food and energy, core inflation rose just 2%, continuing a downward trend. So shelter costs, which are still the biggest driver of inflation are still rising, but at a more manageable pace. And meanwhile, vehicle prices, both new and used, are stabilizing and even repair and insurance costs, which had been soaring are finally starting to level off. So looking ahead, inflation should continue easing through the first half of 2025 particularly as some of the last year's price pressures fade. But there are risks, things like new tariffs or changes in immigration policy could infl, could push inflation back later in the year. So for now, though, we're seeing a steady disinflationary trend. Dave Sojka (02:54): Okay, good. And we'll kind of break those some of those components out as we kind of continue our discussion. So we'll, we'll kick things off breaking that down with the labor market trends. And so we had a good jobs report last week, 143,000 jobs, added unemployment rate edge down to 4%. What's the outlook for the first half of the year, do you think? Shandor Whitcher (03:18): Yeah, absolutely. So we expect underlying job growth to settle closer to one 75,000 in the coming months. Still healthy, but gradually decelerating. So the unemployment rate dips slightly to 4%. Sorry, when I say underlying, I mean abstracting from the va reason of the data. Job growth goes up, it goes down, but, you know, kind of peering through maybe seasonal adjustment, et cetera. Mm-Hmm . So just to be clear on that so the unemployment rate, as you noted, dips slightly to 4%. And a key measure of labor market strength. The prime age employment population ratio is also holding steady at the strong level. So industry-wise, healthcare continues to be a major driver of job growth. While retail has also seen steady gains. So on the other hand, revisions showed that professional and business services, when I say revisions talking about benchmark revisions, right? Shandor Whitcher (04:10): So this is the, the BLS takes a hard count of employment through the quarterly census of employment and wages. And these data the, the payroll survey data that you see, you know, on a monthly frequency these data get benchmarked to a hard count of kind of tax paying data tax paying employment. So revision showed that professional and business services weren't quite as strong as initially thought particularly in temporary employment and computer programming roles. So looking ahead, job growth should continue slowing especially as immigration trends normalize and labor supply growth pools. So by the end of the year, we're expecting monthly job gains to drop to around 70 per 70,000. This will keep unemployment rate near 4%. This report doesn't change. The fed's view that the labor market is gradually coming into balance, so they're wait and see approach to rate cuts remains intact. Dave Sojka (05:12): Okay. Yeah, that was gonna be one of my my kind of follow up question on that. And I've seen a lot of comments over the weekend around kind of what the, what this does to the Fed. So I know there were a lot of revisions some rather rather sizable revisions for I think November and December. So we had good numbers in January. I think the, the speculation has been around maybe, maybe June would be when the fed more realistically might entertain their first rate cut. So given strong, what I'll call strong, I wanna put words in your mouth, but strong job numbers. Do you think that that changes their view at all for that maybe that looking at rate, rate adjustment, we'll call it up or down, say, rate adjustment for this year? Shandor Whitcher (06:03): Yeah. So we expect them to kind of hold this pattern for a while, right? Kind of we expect them to take a pause in the rate cuts while they assess how new policies, things like tariff, immigration changes and potential tax cuts, inflect impact inflation and growth. So these policies could be inflationary, but the extent depends on how aggressively they're implemented. So the Fed is likely to wait for a bit more clarity before making its next move, which we will think will come by the September, 2025 meeting. Dave Sojka (06:35): Okay. Okay. Good to note. Kind of broadening our horizons, if you will. Let's take a look at kind of the, the global trade dynamics. And so, you know, there are some geopolitical tensions out there in addition to the, we'll call it the trade wars, right? We just saw the, the, there will be tariffs on aluminum and steel, including inclusive of Mexico and Canada. But there are also other, you know, actual conflicts out there. And so what are those, the tension, the, the tariffs, regional conflicts? What is their impact on global trade and really economic stability? Shandor Whitcher (07:12): Yeah, so I'll, I'll start with tariff policy. So higher tariffs would raise costs for businesses and consumers. This adds to inflationary pressure. It also puts strain on global supply chains. And it's, you know, it's effectively a negative supply shock, right? So it's inflationary and it's counter to growth. You know, moving past tariffs as far as geopolitical tensions go, we've got conflicts in the Eastern Europe, the Middle East, and ongoing US China frictions. These are all creating challenges. So these disruptions can increase shipping costs, reroute trade flows, and make supply chains less efficient. So a prime example of this is instability in the Red Sea, which has already led to higher transportation costs moving between moving goods between Asia and Europe. So despite these risks, trade's been very resilient. Businesses have been adjusting by diversifying their supply chains and increasing trade with more stable partners a trend sometimes called friend shoring, right? So there's also been more investment in domestic manufacturing to reduce reliance on global suppliers. So the big question is whether these pressures will slow global growth. If policy shifts remain measured, trade can continue adapting. But if we see increase in tariffs or escalating geopolitical tensions it'll weigh heavily on economic activity and cause inflation. Dave Sojka (08:41): Good to note. So I'm, I'm writing that down for my new word of the day friend shoring, so I appreciate that. Shandor Whitcher (08:47): Yeah, yeah, indeed. Dave Sojka (08:49): That that new word there. So obviously, you know, on, you know, unemployment rates inflation are always, okay, what's next? And so one of those, you know, risks that nobody really wants to talk about is recession risk. And so what do, what do you, what is, I wanna say, what are, what's Moody's, you know, given the scenarios that you, that you've that you have what are the chances of a recession this year? And then what factors could trigger that? Shandor Whitcher (09:24): Yeah, absolutely. So, you know, a as you noted, the US economy is in very solid shape. I think our, you know, chief economist is even, you know, on record in the past few months saying this might be the best economy ever, you know, so it's, you know, we're, we're doing really well. Now that said, risks are mounting and the path forward has grown less certain. So historically, the US experiences recon recession every six to seven years on average. So that just means the unconditional probability of a downturn in any given year is around 15%. So given current conditions, we estimate the risk of recession over the next 12 months, that about 25%, so higher than normal but not in threat. So a major wild card as we've been discussing is economic policy under the new adminis administration. So if you've got these, you know, potential policy shifts, this includes higher tariffs, stricter immigrations tax cuts, and these could all have really complex effects. Shandor Whitcher (10:20): So, you know, on one hand, tariffs, which we've kind of already discussed, but also labor supply constraints. So if you, you know, if you reduce immigration or you know, you, you find the labor supply shrinking through you know, workers being removed from the country. This, you know, stands to push inflationary pressures higher. So on the other hand, you know, uncertainty around fiscal policy could weigh on business investment and consumer sentiment, which also stands to slow growth. So and another key risk here is the bond market. So long-term interest rates have risen sharply. And this reflects investors' concern over policy uncertainty and fiscal sustainability and potential inflationary pressures. So if rates remain elevated for an extended period that could tighten fiscal conditions, financial conditions, my apologies, and that'll slow lending and dampen ec economic activity and you know, kind of at your tail risk, right? Shandor Whitcher (11:21): A, a particularly sharp move higher in yields could create stress in financial markets. This, you know, stands to put pressure on asset prices, including stocks, housing, and commercial real estate. So also add the labor markets, another factor to watch. So while job growth has been strong, hiring is gradually slowing. And at the same time, a more cautious approach from businesses could further reduce demand for workers. So if layoffs were to kind of pick up, we don't really have the hiring to offset that, and that would put pressure on household spending, which is the biggest driver of growth. So I'll just, you know, give our baseline outlook. It assumes the economy continues expanding though at a slower pace policy shifts could create inflationary pressures. And these are, these are your key risks to the outlook. Dave Sojka (12:11): You know, you, you mentioned, you know consumer sentiment, and then, you know, we as, as well as Moody's Analytics has been, you know, kind of saying that, you know, as the consumer goes, so goes the US economy. And so, you know, things have been, been strong, but obviously it's always, you know, what's weighing on the mind of, of consumers. And you, you mentioned, you know, the bond market, I'll kind of switch over to the, you know, the overall market, the stock market, right? Mm-Hmm . And so, hey, I'm, you know, I'm doing well. You know, we, I'm sure we all were kind of surprised when you know, deep deeping came out and then suddenly, you know, the market dropped because, you know, tech stocks are heavily weighted in terms of the major drivers of the stock market. So can the stock market maintain its current momentum and do you think we'll see, or, and or might there be some kind of a correction this year? Shandor Whitcher (13:01): Yeah, so, you know, it's, it's we, we have a, a wonderful chart that I don't have in front of me right now, but, you know, if you look at priced earning ratios and the s and p 500 were at a near all time high for any period outside of you know, the, the, the area leading into the.com bubble, right? So, you know, but stock prices are very richly valued, kind of potentially bordering on frothy, and that presents quite a bit of risk to the economy, right? You, you, you know, you've been having this incredible tailwind to household spending through the wealth effect, you know, particularly, you know, the households that do the bulk of the consumption, those that own stocks, you know, they're feeling well, they're feeling rich, and they're going out and they're spending that money putting it back into the economy, right? So, you know, there's quite a bit of risk on that front, you know, if you see a sharp correction in stock prices, that's gonna dampen consumption and, you know, dampen incomes throughout the economy. So our, our baseline is for equity prices to basically tread water in the year ahead, kind of give corporate earnings a chance to catch up with valuations, you know, let everything come closer to equilibrium. But we're not expecting any kind of large sell off in the year ahead, Dave Sojka (14:11): Barring any major policy . Shandor Whitcher (14:14): Yeah, of course. You know, disrupt disclaimer that risks are elevated, right? That's kind of that, that's what we'd say, right? Dave Sojka (14:23): Kind sticking with the consumer, I wanna talk a little bit about income inequality. And so we mentioned stocks, and, and I think I, I saw a report recently that, you know, the number of, of people, a number of working adults that have access to 401k has significantly improved. And then those that are enrolling in 4 0 1 Ks has dramatically increased over time as that access has has increased. But obviously there are those that don't have that that, and so do we think that the gap between the higher income earners and then the lower income earners continues to widen, well, we call it an ACA shaped economy. Are we seeing that bifurcation there? And kind of what, what policies might be able to be implemented to address that? Shandor Whitcher (15:05): Yeah, so there's there's actually quite a bit of optimism on that front, right? So as if we have this strong labor market and, and which we do, and we're able to keep it going, you know, that should bring income inequality and help close that gap, right? So, you know, as you kind of hold that in, do you mind if I restart? Sure. My door is jiggling over here. I'm sorry. That's okay. Dave Sojka (15:28): That's okay. Shandor Whitcher (15:30): It's driving me nuts. Getting a, getting a warm weather day in Philadelphia, so it's oh, very nice. Yeah, I got, got the windows open. Dave Sojka (15:42): Alright. Do you, did you want me to repeat the question and then go from there? Or, or you think you go just ? Shandor Whitcher (15:48): Oh yeah. Let's, let's repeat the question please. Okay. I think I, I respond better to that just as long as we're stopped. How am I doing so far? Is this feeling conversational and good? Yeah, my first time on a proper pod, usually already present so far. Speaker 3 (16:02): Shandor, you're doing great. Will you move forward a little bit more? Shandor Whitcher (16:05): Yeah, I'm sorry, I'm, I'm a hand talker, so it's been Oh Dave Sojka (16:08): Good, why not? I was gonna point out that you're also, I dunno, you're feeling it, but your fern is bouncing off your Shandor Whitcher (16:12): Head, Dave Sojka (16:14): So No, no worries. Alright. All right. So I, sticking with the, with the consumer Shand, I wanted to a little talk a little about income in inequality. And we, and we just talked about, you know, the stock market and, and, and, and those that are able to invest and put money back into the economy. And I, you know, I read a report recently that, you know, the access to 4 0 1 Ks through, you know, through employment and the number of, of workers able to access and contribute has increased significantly over time. But obviously there are those that are in jobs where 4 0 1 ks aren't an option, or, and or the, the funds are not available for, for purchasing stocks on their own. So will that gap between the higher income and the lower income earners, you know, that K shaped economy that we've been both companies, Equifax and Moody's Analytics have been talking about for the last several years. Will that continue to widen? And then secondly then is what policies might be implemented to help address that? Shandor Whitcher (17:15): Yeah, so there's actually a, a lot of reason for optimism about this in the next few years. And that is just owed to the strength of the labor market. So, you know, if you can keep that labor market at full employment, you're able to pull in a lot of more of the, you know, your lower income workers, the first to drop out the, the less skilled as soon as there's a moment of stress, right? So, you know, this all stands to provide higher wages, stronger household income growth, and, you know, most importantly of all, drive that poverty rate lower which will, you know, contribute to that. So, gains bin will be particularly pronounced among young workers and those with less formal education groups that traditionally see the most volatility in income. So the challenge now, as you noted, is to, you know, really enact this, right? Shandor Whitcher (18:02): And so for that to happen economic policy needs to prioritize stable and sustained growth. And that's, you know, that's just ensuring that strength in the labor market which is the most effective tool for reducing income inequality. And that means supporting policies that encourage job creation, investment and you know, help with workforce participation. So as you noted there are risks that could show this slow this progress or you know, what, what policies do we want for that, right? So sharp slowdown in job growth that's gonna hit the lowest weight of workers first. They're often in the most cyclical industries. Policy uncertainty is something we, you know, really should try to keep, keep to a minimum here if we're trying to, you know, keep that labor market strong and kind of help collapse that income distribution. So to maintain that momentum, you're just gonna require an environment that's ensuring job growth, you know, try to avoid an overstep and monetary policy. Yeah. Dave Sojka (19:07): Great. Good. kind of the, one of the last items I had for you going, I kind of joked about it when we're talking about the, the stock market would be techno technological disruptions. And so, you know, we've got, you know, ai, we've got, you know, the technology behind that the chips, the chip sets again, where those are produced, the minerals required for those. So, you know, how will emerging technologies like ar, like ai like automation, reshape industries in the job market? Shandor Whitcher (19:39): Yeah. So artificial intelligence and automation are kind of already reshaping these industries, right? The biggest Inca impacts by our outlook are still to come. So in the near term, most of the gains from AI are being seen in, okay, modest efficiency improvements, helping a business, streamline operations here and there automate your routine tasks and you know, kind of help with small decision making tasks. But over the long run AI is well positioned to provide a significant boost to later productivity, particularly in the latter half of the decade. So, historically, technological advancements, they just take time to translate into broad economic gains. You know, sometimes you'll, you'll, you'll hear the joke that productivity expands kind of one retirement at a time, right? So it's, you know, as, as you get that uptake, you know, now you see the gains from it as you know, processes are able to adapt. Shandor Whitcher (20:35): So the industries, the stand to benefit most are those with unsurprisingly, you know, highly repetitive at a data intensive tasks, finance, healthcare, logistics. But, you know, we do think AI will, you know, have a, have an impact across sectors. So, you know, another question that you hear a lot is how this will impact labor markets. So automation undoubtedly change the nature of some jobs. The broader trend suggests AI will complement rather than replace most workers. So as productivity rises, businesses will be able to expand output without fortunately increasing labor costs. And this is just a net tailwind to wage growth over the, over the extended horizon, right? You know, you have your, your ups and downs, short-term pain, long-term gain. So, you know, then for the broader macro economy, AI driven productivity grains will provide a meaningful tailwind. And as this adoption is taken of, so more of a, more of a long term effect. Dave Sojka (21:37): And I, I know, and I've, I was just thinking about obviously some of the, the options or, or the, you know, where we're seeing this is would be, you know, call centers, right? And, and I think, you know, the, the US consumer might have a say so in how much automation they're willing to tolerate in terms of a chat bot answering questions, right? And I'm sure we've all been there not the most pleasant experience. So I guess we'll remain to be seen how how disruptive that could be. So I wanna thank you for your time today and wanted to know if there's anything else on your mind that we haven't touched on yet. Shandor Whitcher (22:12): Yeah, I just wanted to touch on housing. It sort of feels like it's been backburnered with all the mm-hmm . All the, all the tumult in the markets and everything. But I, you know, I, I, I care a lot about it. I think it plays such a central role in the economy and, and people's lives. And it, you know, beyond just being a place to live, home ownership builds wealth, supports labor, mobility contributes to economic stability, and, you know, having a, having a dynamic demographic populace, you know it, it, it allows people to respond to labor market incentives as it's easier to move and, you know, transfer jobs and switch, et cetera. So, you know, one of the biggest issues right now is historically low affordability. You know, mortgage rates have just even been rising in the past month. And so, you know, and that's adding to these historically high home prices relative to incomes. Shandor Whitcher (23:01): And this has made it increasingly difficult for new buyers to enter the market. So this isn't just a concern for wouldbe homeowners as I said, it has broader economic implications just for economic growth. So when housing becomes inaccessible, you lose out on that labor market mobility, and that just stifles the dynamism in the broader macro economy. So this is kind of a, to me, sort of a, a long-term headwind, right? If you have workers that aren't able to transfer and travel, that's, that's a kind of a huge slow moving risk to the economy. So, and you know, in the, in the near term, how do we get outta that, we increase supply, right? And so the US has faced a persistent housing shortage and new construction just isn't able to keep up with the demand. And so, you know, if we're on the topic of trade policy, you know, you, you, you add to this pressure, right? With increased tariffs on building materials, which can drive up construction costs, and mm-hmm . You know, even make it harder for home builders to bring new supply into the market you know, materials like lumber and gypsum are already subject to tariffs and expanding them with further increase costs leading to fewer housing starts and dampening affordability. So that's a, that's just a secondary risk I like to bring up for a, a topic that feels like it's been backburnered a little bit. Dave Sojka (25:07): Yeah, it's a lot to think about. And obviously, you know, you know, as we're talking here today, you know, it's arou, it's, it's a round again, these things are, are, are connected. And so as we're listening to the news, you're, you're reading something just again, it's really important to step outside of your narrow focus and, and, and say, oh, this has bigger implications. And while I might think, oh, this something doesn't affect me, well, it, it might in your grocery shopping, in your, in your look in your search for housing, in your travels and so on. So again, Chandra, thank you so much for your time today, and if our audience wants to follow up with you, where can they find you? Shandor Whitcher (25:51): Yeah, I'm on LinkedIn. You can read my work on economy.com. Those are the two biggest, I'm not the big social media guy, so LinkedIn would be the place. Dave Sojka (26:00): Those are those, that's the, that's the proper the areas to, for our audience to search for you. And so, absolutely again, thank you. Thanks again and to you the audience. If you enjoyed today's episode, please tell your friends about us and subscribe. If you'd like to send us questions or suggested topics for future episodes, email us at Market Pulse podcast@equifax.com. And don't forget to register for our Market Pulse webinar series at equifax.com/market Pulse. Our team of experts works hard to provide relevant economic and credit insights to help your business make more confident decisions and build resilience to help you focus on forward. Thanks for listening, and please join us next time. Thank you.