Economic Update: Insights for 2025

During our February 2025 Market Pulse webinar, our panelists discussed the impact of student loan debt on the economy. 

To open the conversation, Wescott Strategic Advisors President Dr. Robert Wescott shared a macroeconomic update, dissecting the latest market changes and trends to watch.

Current State of the Economy and the Building Blocks of a Healthy Economy

There has been a slight softening in the overall economy since December 2024. Deregulation by the new presidential administration has been a positive sign for businesses, fostering excitement and potentially reducing costs and spurring investment. The economy is currently supported by three main pillars: a healthy labor market, strong household wealth, and resilient consumer spending.

Building Block #1: A Healthy Labor Market

The U.S. labor market remains robust, with unemployment near its lowest rate in 50 years. In 2024, the unemployment rate was 4.1%, and in January 2025, it stood at 4%. Workers are confident and experiencing solid income gains. However, the labor market is showing signs of maturity. The pace of new hiring is slowing, with Indeed job postings down 10% in the past year and 30% over the past three years. New job creation is shifting towards sectors that typically lag the business cycle, such as nursing homes and local government support, rather than higher-paying professional services.

Building Block #2: Rising Household Wealth

U.S. household wealth is estimated at $170 trillion, largely driven by equity markets and home wealth. This figure sets the U.S. apart globally, with household wealth exceeding that of all other G7 countries combined (except China). Approximately 60% of U.S. consumption growth in 2024 was attributed to this wealth. An increase of $13 trillion in household wealth over the last four quarters significantly impacts consumer spending, as people tend to spend more when their stock market and housing wealth increase.

Building Block #3: High Consumer Spending

Consumer spending remains a key driver of the economy. The fourth quarter of 2024 saw strong spending, though January data indicates some weakening. Restaurants and bars continue to thrive, showing a 5.4% year-over-year increase in January, possibly due to post-COVID-19 pandemic effects. E-commerce sales are also strong, up 4.7% year-over-year in January. However, there's growing concern as spending has outpaced income growth in 10 of the past 11 months, causing the household saving rate to drop significantly.

Headwinds to Watch: K-Shaped Consumer Wealth and Student Loan Debt

Multiple factors could potentially hinder economic growth, with a couple key ones to watch. The consumer landscape is increasingly K-shaped, with the share of consumers making minimum credit card payments rising to a 12-year high 10.8% in Q3 2024, while the share of those paying their full balance is also historically high at 34%. Student loan debt is another concern. The resumption of payments by 20 million borrowers on $1 trillion in student loans, after a COVID-19 pandemic pause that ended in October 2023, is estimated to have slowed consumer spending by about 0.4% in 2024 with further effect possible.

Inflation

Inflation is proving to be more persistent than anticipated. The top 45 CPI categories, representing about 40% of the overall CPI, are up 3.3% over the last six months (annual rate). This suggests that inflation is not fully under control, though the expectation is that it will eventually ease. Key categories to watch include rent, food and drink outside the home, insurance, water/sewer/trash collection, medical services, electricity, and transportation services.

Several federal policies could impact inflation. Tariffs and trade policies could increase import prices and disrupt supply chains, affecting the prices of cars, electronics, food, building materials, and metal products. Lower interest rates might provide short-term relief but could worsen inflation long-term. Fewer regulations could reduce business costs and, consequently, inflation. Expanding oil and gas drilling might temporarily lower energy prices, but the effect would likely be small given current production levels.

Interest Rates

Policy uncertainty is likely to make the Federal Reserve more cautious about cutting interest rates. Currently, predictions suggest only one or two rate cuts this year, with some anticipating a single 25 basis point cut in July.

Final Thoughts

The U.S. economy in 2025 presents a mixed picture. While the labor market and household wealth remain strong, there are headwinds like rising credit card debt, student loan repayments, and persistent inflation. 

These trends suggest moderate economic growth in 2025, assuming a steady economic policy trajectory. This includes decent GDP growth, gradually easing inflation, softer job counts, and one or two rate cuts by the Fed. Currently, Dr. Wescott predicts 2.2% GDP growth, 2% consumer spending growth due to student loans, and a 2.5% CPI and 4.3% unemployment rate in December 2025 on top of the anticipated one to two interest cuts by the Fed.

Keep Your Business Goals Within Sight

Need your business run better and more efficiently? Reach out to riskadvisors@equifax.com to learn how you can leverage data-driven solutions to foster growth while balancing risk.  

We hope you will join us for our March 2025 Market Pulse webinar taking place on Thursday, March 20, 2025, when our economist all-star panel will recap key economic trends from Q1 and discuss the latest critical topics shaping the financial landscape. To ask questions in real time and gain deeper insights before anyone else, you simply have to be there. 

Find our monthly Small Business Insights, National Consumer Credit Trends reports, the Market Pulse podcast, and more at our Market Pulse hub. 

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Source:

1. Robert Wescott, Wescott Strategic Advisors, Equifax February 2025 Market Pulse Webinar

*The opinions, estimates, and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.