CNR Speedometers^®

The U.S. economy is wrapping up 2024 on a strong and optimistic note. With the election behind us, the focus has shifted to moving forward, reflected in a resilient economy and robust markets. Recent changes to our outlook reflected in the Speedometer® adjustments highlight improvements in several areas.

Business spending has picked up, reflecting confidence in growth, while fiscal policies have provided stability without fueling inflation. Consumer sentiment continues to climb, supported by a strong labor market and steady energy prices. Stabilized energy costs have helped keep inflation manageable, adding to overall economic balance. These updates underscore a solid foundation for sustained growth as we move into the new year.

2024 has been a stellar year for equity markets. November alone saw over $120 billion in equity inflows, a record-breaking show of investor confidence. Markets are bolstered by stable policies, strong consumer spending, and solid corporate earnings. While corporate profit expectations remain high at 15% for next year, we expect gradual moderation as the economy normalizes.

Dial 1: Consumer Sentiment, 1:21— The diversity and breadth of market participation has also been notable with gains spanning multiple sectors. This broad-based strength reflects improving sentiment and reinforces the sustainability of recent market trends. Our [Consumer] Sentiment Speedometer® has mirrored this robust activity, reflecting growing investor optimism.

The Federal Reserve has been central to this year’s economic environment. With current rates at 4.5% – 4.75%, a cut is expected soon. However, we predict rates will settle higher than the market’s expectations by the end of 2025 due to a strong job market and persistent service costs.

The 10-year treasury yield has remained stable, averaging 4.3% since the election. This consistency is good news for bond returns and overall economic stability reflected in stable monetary policy readings on our Speedometers®. This environment provides an attractive opportunity for fixed income investors as bond yields remain steady within a favorable range.

Dial 2: Inflation, 2:19— Inflation is moderating, but it does remain sticky. The latest report shows inflation at 2.7% within our forecast of 2.5% – 3%. Core inflation driven by housing and services has been steady. While we don’t expect inflation to hit the Fed’s 2% target, it’s manageable at current levels, and these inflation trends align with stable energy pricing.

Consumer spending is a key strength powered by a healthy labor market and improving sentiment. Despite earlier fears of rising unemployment, the job market has stayed balanced and continues to support growth. [Consumer] Sentiment, one of our critical Speedometers®, remains a strong positive driver, highlighting the importance of consumer confidence and sustaining economic momentum.

Growth exceeded expectations in 2024, driven by strong consumer demand and stable policies. As the economy normalizes, we expect growth to slow slightly and return to long-term trends, reflecting a balanced and sustainable trajectory. Improved business sentiment aided by fiscal and monetary clarity supports this outlook. These trends were key to the upgrades in our fiscal policy and sentiment Speedometers®.

Dial 3: Business Outlook Spending/Surveys, 3:25— Small and medium-sized businesses have also played a pivotal role with increased investments in hiring contributing to broader economic stability. These developments were captured in our updated Business Outlook Speedometer®, signaling continued resilience in the private sector.

And heading into 2025, several factors will influence growth. Pro-business policies are likely to drive investment and activity, though they come with potential risks around debt and inflation. Geopolitical issues, particularly U.S.-China relations, will also play a role, adding an element of uncertainty.

Technological advancements, especially in AI, are set to fuel further investment in spending, boosting overall economic performance. And despite high-equity valuations, strong earnings are expected to sustain market momentum with continued inflows into cyclical sectors. These factors align with our adjusted Speedometers®, which reflect optimism across technological and economic drivers.

As 2024 ends, the U.S. economy is in a strong position. While challenges like inflation and geopolitical uncertainties do persist, the overall economic outlook remains positive with stable growth and broadening opportunities. And with adjustments across key Speedometers®, such as business spending, sentiment, fiscal policy, and energy pricing, the economy is well-positioned for a balanced and prosperous 2025. These improvements provide a solid framework for navigating potential challenges while capitalizing on emerging opportunities.