by Calculated Risk on 1/05/2025 12:39:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2025. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2024.

1) Economic growth: Economic growth was probably close to 2.8% in 2024 (around 2.6% Q4-over-Q4).  The FOMC is expecting growth of 1.8% to 2.2% Q4-over-Q4 in 2025. How much will the economy grow in 2025?  Will there be a recession in 2025?

A year ago, I argued that "the economy will avoid recession" in 2024, and that a soft landing was the likely outcome.  Looking at 2025, a recession is mostly off the table.  Of course there are always exogenous events such as another pandemic, super volcanoes, a major meteor strike or even nuclear war.  There are several geopolitical issues that could lead to recession - in Ukraine, the Middle East, and with China.   However, none of those risks appear likely to cause a U.S. recession this year.

Here is a table of the annual change in real GDP since 2005.  Prior to the pandemic, economic activity was mostly in the 2%+ range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%..

Note: This table includes both annual change and Q4 over the previous Q4 (two slightly different measures).   For 2024, I used a 2.6% growth rate Q4 over Q4.  (this gives 2.8% real annual growth).  

Real GDP Growth
Year	Annual GDP	Q4 / Q4
2005	3.5%	3.0%
2006	2.8%	2.6%
2007	2.0%	2.1%
2008	0.1%	-2.5%
2009	-2.6%	0.1%
2010	2.7%	2.8%
2011	1.6%	1.5%
2012	2.3%	1.6%
2013	2.1%	3.0%
2014	2.5%	2.7%
2015	2.9%	2.1%
2016	1.8%	2.2%
2017	2.5%	3.0%
2018	3.0%	2.1%
2019	2.6%	3.4%
2020	-2.2%	-1.0%
2021	6.1%	5.7%
2022	2.5%	1.3%
2023	2.9%	3.2%
20241	2.8%	2.6%
1 2024 estimate based on 2.8% Q4 SAAR annualized real growth rate.

  

Real GDP growth is a combination of labor force growth and productivity.  

Productivity varies and is difficult to predict, but the labor force growth will likely be sluggish in 2025.  So, my guess is that real annual GDP growth will be less than most expect, perhaps around 1.5% in 2025.

Here are the Ten Economic Questions for 2025 and a few predictions:

• Question #1 for 2025: How much will the economy grow in 2025? Will there be a recession in 2025?

• Question #2 for 2025: How much will job growth slow in 2025? Or will the economy lose jobs?

• Question #3 for 2025: What will the unemployment rate be in December 2025?

• Question #4 for 2025: What will the participation rate be in December 2025?

• Question #5 for 2025: What will the YoY core inflation rate be in December 2025?

• Question #6 for 2025: What will the Fed Funds rate be in December 2025?

• Question #7 for 2025: How much will wages increase in 2025?

• Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

• Question #9 for 2025: What will happen with house prices in 2025?

• Question #10 for 2025: Will inventory increase further in 2025?