Economists Predict Bumpy Road in 2025 With Hope for Stability

Business Analysis

If 2024 was anxious, uneasy, apprehensive, or too often perturbing because of worker shortages, political unrest, and ongoing inflation, the new year might prove more stable and uplifting, if you can handle the continued bumpiness—that is the view of several national expert economists heading further into 2025.

As the U.S. economy continues to grapple with the same concerns from the past few years, a few key factors are projected to make a world of difference between seeing a market that is more robust or still-lagging.

“We anticipate quite a bit of clear-air turbulence throughout the year that will be unsettling to investors,” said Jeff Krumpelman, chief investment strategist and head at equities of Mariner Wealth Advisors, in a recent presentation in Greenville, South Carolina.

“We call for an S&P price level of 6,600 by year-end 2025 in our base case, and envision 7,000 in an optimistic scenario. The ride simply might not be quite so smooth this year.”

As in 2024, the biggest challenges at present and ahead are inflation, interest rates, labor productivity, profit margins, and the ongoing labor shortage.

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“If trends in these metrics are not as constructive as we expect in our base case, it could inspire a recession that no one anticipates at present,” Krumpelman said.

Joseph Von Nessen, a research economist professor at the Darla Moore School of Business in Columbia, South Carolina, added that while the U.S. inflation rate has been slowly falling towards the Federal Reserve’s target of 2 percent, significant price pressures “could blunt this momentum.”

“More specifically, strong consumer spending, high wage growth, elevated housing prices, and rising transportation costs are all still putting upward pressure on prices,” Von Nessen told The Epoch Times.

“This threat of higher inflation could be further exacerbated by any new tariffs enacted.”

Plus the fact that for better than 20 years, growth of the U.S. Gross Domestic Product (GDP), a key component of the annual economy, has performed far below its optimum rate.

For example, economists such as Krumpelman and Von Nessen consider 3 percent to be a healthy GDP growth rate, because this rate historically signifies that the economy is expanding at a reasonable pace: not too rapidly, which could lead to inflation concerns, nor too slowly, which could indicate potential stagnation.

“From 2004–2023, U.S. GDP growth has averaged only 1.9 percent,” Greiner said.

“We are forecasting the U.S. ‘real’ economic GDP growth rate will fall in the 2.0-to-2.5 percent range for 2025. While positive, growth should continue to be slower than the long-term average of 3.2 percent.”

Another part of this equation with respect to labor shortages is changing demographics: the nation’s population is getting older and has been headed in that direction since the turn of the millennium.

Since 2011, many Baby Boomers, born 1946–64, have retired in greater numbers than have been replaced by younger workers.

This trend is not expected to change anytime soon.

“Although there are several major contributing factors that have helped create this labor shortage, the biggest is the retirement of the Baby Boomers,” Von Nessen said.

And not all of them are retiring or moving into senior living facilities: Von Nessen projects that over the next decade, and probably for a lot longer, seniors are going to more vital parts of the workforce than ever before.

“The U.S. Bureau of Labor Statistics specifically projects that between 2022 and 2032, the number of people in the labor force over the age of 55 will increase by 2.7 million—or 7.1 percent,” he said.

“By contrast, the number of people in the traditional ‘prime working age group’ of 25–54 is only expected to increase by 5.2 percent over the same time period. Thus, older Americans will become a bigger part of the U.S. workforce.”

But even without the element of seniors, most U.S. industry sectors are currently struggling to find workers.

South Carolina’s unemployment rate, for instance, increased from 3 percent to 4.8 percent in 2024—but the state’s average unemployment rate across all previous economic expansions was 6.0 percent, Von Nessen said.

“This is great news for workers, but it also means that firms are likely to continue to face hiring challenges in 2025 that could limit their ability to expand,” he said. “This, in turn, could restrict the potential for economic growth in South Carolina and across the U.S.”

Then there is inflation—which can be illustrated in the fact that a gallon of Walmart orange juice, which cost only $3.99 a few short years ago, now costs $8—when you can find it.

Von Nessen said if inflation were to reverse direction this year and begin ticking up towards 3 percent, the Federal Reserve would be far less likely to continue lowering interest rates. “This means that businesses and consumers would be less likely to see decreases in borrowing costs in 2025 that could further stimulate investment and purchasing activity,” he said.

Other Key Factors

A decline in unit labor costs translates to a large increase in labor productivity. On a year-over-year basis, unit labor costs grew by 0.8 percent in the third quarter of 2024, nearly flat, as labor productivity growth is keeping up with rising labor costs.

“This is the first time we have witnessed that level of increase in productivity in 10 years,” Greiner said. “Growth in labor productivity is the magic elixir of higher income flows, which eventually turns into higher levels of societal wealth.”

Stock Market Changes

Compared to 1950, when fewer people had money to invest in stocks, the market is now vastly more accessible to almost anyone. Far more companies are listed on the exchanges, investing can be conducted online, information is readily and immediately available, and options have grown to include a wide variety of mutual funds and service industries.

“In terms of what’s driving growth in 2025, earnest growth is expected to be very strong in information technology, communication services, consumer discretionary such as restaurant and travel, because consumer spending and employment are strong,” Krumpelman said.

“And we expected S&P 500 earnings growth to be about 10–12 percent in 2025 and 12–15 percent in 2026.”

US Equities

Krumpelman added that equities have “been on a tear these past two years,” with the S&P 500 rising more than 2,000 points, resulting in investment returns in excess of 60 percent over that time period. He cited a strong trend in fundamentals as the primary catalyst: The surge in inflation caused by the pandemic peaked in June of 2022, and it has been improving ever since.

“Other fundamental metrics—such as growth in the economy and earnings—have been far more robust than expected,” he said.

10-year Treasury Notes

The 10-year U.S. Treasury note offers the longest maturity, and pays interest every six months until maturity. In a normal economy, the 10-year Treasury yield typically ranges between 2 to 4 percent. This range reflects moderate economic growth and mostly stable inflation.

“We’re expecting a range of 3.5 percent to 5 percent with the average around 4.5 percent,” Krumpelman said.

Consumer Purchasing Power

Since the pandemic, and especially in the last 12 months, consumers have lost “significant purchasing power,” said Von Nessen, because prices for goods and services have risen much faster than wages.

For example, $100 worth of groceries in December 2019 cost $128 in October 2024. Food prices in 2024 alone went up 28 percent.

“It’s the type of thing consumers have been seeing on a regular basis,” Von Nessen said.

“The good news though is that over the last year, we’ve actually seen inflation drop below the average rate of wage growth in the United States. And I expect in 2025, consumers will recover all that purchasing power.”

A lot to look forward to? Everyone will of course have to wait and see—but as Greiner noted—while 2025 could be more hopeful in the United States, it could look a lot less promising in other parts of the world.

“Many bemoan the problems that we Americans face,” he said. “But in relation to the rest of the globe, the U.S. economy is a marvel.”