While recent economic data releases have bolstered the case for a soft landing of the U.S. economy, mixed readings on the labor market and elevated policy uncertainty cloud the 2025 outlook. The new administration will pursue initiatives to boost growth, but those could come at some cost. The ability to meaningfully expand the fiscal impulse seems unlikely, even with a united government.
Recent revisions to income data have been positive and eased concerns about the durability of the U.S. expansion. Higher income in the annual revision to gross domestic income (GDI) helped assuage concerns that a low saving rate would cause consumers to pull back on spending. The reported saving rate rose from a concerning 2.9 percent to a more normal 4.8 percent, meaning that consumption—the main engine of economic growth—has a longer runway than previously indicated.
Recent labor market data have also showed a gradual cooling, but more abrupt labor market weakness remains a risk to our outlook. While the strong September employment report suggested some stabilization, payroll growth in October was weighed down by the effects of hurricanes and strikes, and the unemployment rate ticked higher, again suggesting an ongoing cooling. With so much noise impacting October payrolls, it is reassuring to see alternative measures holding up, with jobless claims reversing after a hurricane-related jump and surveys suggesting slightly better hiring conditions.
The outlook for 2025 is uncertain given potential shifts in policy after the election and geopolitical risks. A continued moderation in immigration points to a slowdown in U.S. economic growth, and uncertainty about the path of trade policy could be an additional headwind. However, the potential for further tax cuts, continued appreciation in financial assets, and a potential boost to business sentiment after the election are tailwinds. Fundamentals point to a further easing in inflation, but tariffs could lead to price shifts that interrupt that trend. On balance, the Fed will likely continue to recalibrate policy toward a neutral setting next year, which we estimate at 3.25–3.5 percent.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the authors, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Investing involves risk, including the possible loss of principal. In general, the value of a fixed-income security falls when interest rates rise and rises when interest rates fall. Longer term bonds are more sensitive to interest rate changes and subject to greater volatility than those with shorter maturities. During periods of declining rates, the interest rates on floating rate securities generally reset downward and their value is unlikely to rise to the same extent as comparable fixed rate securities. Investors in asset-backed securities, including mortgage-backed securities and collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate.
Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, and GS GAMMA Advisors, LLC.
GPIM 63182
©
Guggenheim Investments. All rights reserved.
*Assets under management is as of 9.30.2024 and includes leverage of $14.8bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, and GS GAMMA Advisors, LLC.