Economy at a Glance – January 2025

Economy at a Glance January 2025

Editor’s Note: The following summarizes the Partnership’s ’25 employment forecast released December 12, 2024. The summary includes several economic indicators that have been updated since the forecast was first released. The updates did not change the outlook. The full forecast can be found at www.houston.org/economy.

The U.S. is doing well despite earlier reports to the contrary. In the 12 months ending November ’24, the nation has created 2.3 million jobs. The unemployment rate has tracked 4.2 percent or lower in 11 of the past 12 months. And real gross domestic product (GDP) has grown 2.8 per-cent over the past 12 months. In fact, the U.S. has led all developing nations in recovering from the pandemic. U.S. GDP increased 10.7 percent since the end of ’19, versus 5.9 percent for Canada’s GDP, 3.9 percent for the Euro-zone, 3.0 percent for Japan, and 0.2 percent for Germany.

Houston is no laggard, either. The region created 62,500 jobs in the 12 months ending November ’24. Our unemployment rate has averaged 4.4 percent over the year. Initial claims for unemployment benefits have fallen to pre-pandemic levels. Construction has picked up. And people and businesses continue to flock to the region.

Both the U.S. and Houston are poised for growth in ’25. Whether that growth stalls or accelerates depends on the path of inflation, the level of U.S. interest rates, consumer confidence, and actions taken by Congress in the spring.

The annual rate of inflation peaked at 9.0 percent in June ’22 and has trended down since, slipping to 2.7 percent in November ‘24. Various surveys forecast inflation to track between 2.0 and 2.5 percent next year. The Partnership expects inflation at the low end of the range.

A lower inflation rate is important for several reasons. For one, it affects consumer sentiment. The effective federal funds rate may be a difficult concept for most Americans to grasp, but everyone knows how much they pay for gas, bread, and blue jeans today versus three years ago. And when inflation declines, consumers feel better about the economy and open their wallets.

To combat inflation, the Federal Reserve began hiking the federal funds rate in the spring of ’22. In the fall of ’24, seeing that inflation was nearing the Fed’s 2.0 percent tar-get, the bank began to lower the rate. Many business and consumer loans are pegged to the rate, so its decline should make buying a car, purchasing a home, or financing equipment more affordable, thus boosting economic growth.

The Conference Board’s October ’24 Consumer Confidence Index surged to its highest level since January ‘24. The same month, the University of Michigan’s Survey of Consumer Sentiment hit its highest level since April ‘24. And in the Kinder Institute for Urban Research’s spring ’24 survey of Houston residents, 72 percent of respondents indicated they were excited about the future. All of this bodes well for consumer spending in the coming months.

The biggest unknown is the impact that Congress and the White House will have on the economy in ’25. A more aggressive trade policy could result in higher prices on imported goods and retaliatory actions by our trading partners. Tax cuts and spending increases would compel the U.S. Treasury to issue more debt potentially raising interest rates. Reducing the immigrant workforce significantly would cause a severe labor shortage. Another budget impasse would shut down the government, reduce spending, and slow economic growth. Those are possibilities, however, not probabilities.

Barring a “black swan” event, the U.S. is unlikely to slip into recession in ’25. The Wall Street Journal’s October survey of prominent business economists rated the probability of a recession over the next 12 months at 26 percent. That’s down from a 63 percent probability in the October’22 survey. The consensus from the Blue Chip Survey, another poll of the nation’s economists, is for U.S. GDP to grow 2.1 percent in ’25. And when the National Association for Business Economics asked its members “When will the next recession begin?” only 10 percent responded that a recession might occur in ’25; 63 percent responded in ’26 or later. If the U.S. avoids a recession, so will Houston.

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Note: The geographic area referred to in this publication as “Houston,” “Houston Area” and “Metro Houston” is the ten-county Census designated metropolitan statistical area of Houston-Pasadena-The Woodlands-Sugar Land, TX. The ten counties are: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, San Jacinto, and Waller.