U.S. economy should continue growing in 2025, economist says

Over the past few years, economists have fretted over the possibility that rising interest rates would lead the U.S. into a recession—but sentiment has shifted to one that’s much more optimistic, according to Tom Jalics, the chief investment strategist at Cincinnati-based Fifth Third Bank.

“We’re not going to see a recession in 2024—and based on the data that we see today, we’re not going to see a recession in 2025. That is not what’s forecast by us, or by most Wall Street economists that are out there,” Jalics said Thursday at IBJ’s 2024 Economic Forecast event in downtown Indianapolis.

Speaking at the IBJ event two years ago, Jalics predicted an economic slowdown in 2023, and for 2024 Jalics characterized his outlook as “cautiously optimistic.” Looking to 2025, Jalics said he’s just plain optimistic that the economy will continue to grow. “We think the economy’s on pretty solid footing.”

Jalics offered numerous data points to explain his optimism.

A consensus of economists expects 2.6% growth in GDP this year, and 1.9% growth next year, Jalics said.

“You get into trouble when you’ve got a couple of quarters in a row of 0% or negative growth,” Jalics said. “We’ve been nowhere near touching where we would expect to see an economic slowdown.”

In another encouraging sign, Jalics said, the unemployment rate stands at 4.1%. That’s up from last year’s 3.5%, Jalics said, but the increase is not a cause for concern because the unemployment rate reached a 50-year low last year.

Economists generally consider an unemployment rate lower than 5% to represent full employment.

The unemployment rate is an important measure of economic health, Jalics said, because consumer spending represents 68% of the U.S. economy, and consumer spending is driven by the strength of the job market.

But Jalics also offered some caveats to his overall optimism.

Citing the University of Michigan’s Consumer Sentiment Index, Jalics said the top third of American wage earners feel that the economy is doing great, but those at the low end of the scale don’t share this view. “The bottom third of wage earners think the economy stinks,” he said.

This disparity is partly because lower earners are less likely to own homes or other assets which have seen big increases in value in recent years. But the disparity is also related to inflation, Jalics said, because lower wage earners are hit harder when prices go up.

Though inflation has eased significantly over the last year or so and currently stands at 2.65%, that’s still above the Federal Reserve’s target of 2%. And even though inflation slowed, Jalics said, it doesn’t mean prices will go down. It just means that future price increases won’t be as big as they were during the height of inflation.

Another metric to watch is the rise in delinquency rates for credit cards and auto loans. Both types of loans have seen delinquency rates rise over the past two years or so. Credit card delinquencies currently stand at 3.25% and early-stage auto loan delinquencies are at 7.95%. Both of these rates are higher than what they were pre-pandemic, though they’re not as high as they were during the Great Recession.

“Underneath the surface, there are a couple of canaries in the coal mine that we want to pay attention to,” Jalics said.

Looking ahead to the incoming Trump administration, Jalics offered what he characterized as Fifth Third’s nonpartisan view of how Trump’s policies are expected to affect the economy.

Taxes won’t go up under Trump, Jalics predicted, and the regulatory environment is expected to ease, which is generally positive for the economy.

But on some of Trump’s other key positions, including tariffs, border security and immigration, Jalics wasn’t as certain. The economic impact of these policies will depend on how they are implemented, he said. “The devil is in the details, and we frankly just don’t know.”