March 2025
The US Economy Today
Analyzing the US economy is one of the more challenging parts of a researcher’s job. It’s a complex engine with many moving parts. In addition, economic data is generally backward looking, thus telling us how things have been versus what they will become. Despite all this, we’ve decided to write this blog on the state of the US economy. We will focus on the three data points that we actively follow and believe help describe the state of the US economy: the unemployment rate, the labor market and interest rates. Overall, we believe the US economy is in a good position looking ahead, at least based upon the data available.
Unemployment Rate
The current unemployment rate released by the Department of Labor sits at 4.1% as of February 2025. This is relatively low compared to historical standards. For many decades, an unemployment rate around 5% was considered "full employment." We are currently below that benchmark. However, it is important to remember that the "headline" unemployment rate often does not tell the entire story, as it doesn't capture people who have stopped looking for work entirely (and are therefore not counted as "unemployed") or those who are underemployed (working part-time while seeking full-time work). Despite its shortcomings, the unemployment rate helps us identify broad-based trends in employment and is currently aligned with a strong economy.
Labor Market
The US job and labor market presents a complex picture in the early part of 2025. While overall employment remains relatively strong, there are signs of a gradual cooling. Data from the Bureau of Labor Statistics indicates that job growth has slowed somewhat compared to the post-pandemic recovery period. Key sectors like healthcare, financial services, and public assistance continue to show growth, while other sectors, such as the federal government, are experiencing declines. Wage growth is a significant factor, with average hourly earnings increasing and, in some cases, outpacing inflation. The labor participation rate is also a key figure that economists are watching. Overall, the labor market remains stronger than not, with ongoing shifts in sector demand and workforce participation.
Interest Rates
The final economic indicator to discuss in this blog is interest rates. In its most basic form, interest rates indicate the cost of borrowing to consumers and businesses. Lower interest rates are generally viewed as more accommodative as the cost of bowering is less. In the United States, the Federal Reserve (the Fed) sets short-term interest rates (currently at 4.25%). This has a trickledown effect on mid and long term rates. In 2022, the Federal Reserve began increasing interest rates in order to tame high inflation. Inflation has come down substantially over the past two years, with the Consumer Price Index currently at 2.8%. It is expected that the Fed will cut rates up to four times this year, thus lowering rates further. This should help economic growth, which will enable the consumer to access funds at a lower costs (e.g. mortgage rates will be lower). In addition, lower interest rates should also support the stock market, as businesses will benefit from lower borrowing costs and future profits will be discounted at a lower rate. We believe interest rates will continue to creep downward this year, supporting economic growth.
In conclusion, we continue to believe that staying invested is prudent for long-term investing. Thank you for taking the time to read this latest blog.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.