HIGH POINT — A new administration within the United States and the policy changes that it portends make the economic outlook a little cloudy going into 2025.
The specter of possible U.S. tariffs on key international trading partners and immigration restrictions could spark inflation and slow growth, according to some economists’ forecasts for the coming year. Others are seeing a stronger economy for the most part.
“The outcome of the U.S. election is going to usher in policy changes with implications that will reverberate through the global economy,” said Seth Carpenter, chief global economist at Morgan Stanley in the company’s global economic outlook. “Drivers of growth are changing in the U.S., where we expect the economy to slow in 2025 and even more in 2026 as the imposition of new tariffs and immigration restrictions take hold.
“We think the first round of tariffs from the new administration will mostly target imports from China, followed by a gradual expansion to goods from other countries,” said Carpenter. “As this increase in cost for sellers is passed on to consumers in the form of higher prices, we see inflation picking back up in the second half of 2025, pushing down consumer spending and in turn production and employment. The drag on growth becomes evident in 2026.”
RSM, a Chicago-based middle market tax and consulting service, sees the Federal Reserve’s rate cuts, which began in 2024, taking hold just as the new administration’s policies, which favor tax cuts, are being implemented. That should stimulate spending, RSM’s Chief Economist Joe Brusuelas posited, although he cautioned “should the economy get too hot, those rate cuts may be scaled back.”
RSM’s outlook also points to three possible economic disruptions in 2025: tariffs, immigration and fiscal policy.
The expectation is for tariffs on goods from China, which will increase prices but not elevate inflation.
Immigration moves may impact the labor supply, although it will be more likely in the second half of the year. “Should the tightening of the labor market occur, it would create conditions for a wage-induced bout of inflation through a tight labor supply and falling unemployment,” wrote Brusuelas.
Unemployment, which currently stands around 4.2%, is forecast to increase slightly throughout 2025. However, if immigration policies tighten, unemployment could fall to the mid-3% range, economists say.
Economic growth is expected to be solid in 2025, both globally and within the United States. Goldman Sachs Research is among those forecasting U.S. real gross domestic product (GDP) to increase by 2.5% year-over-year, while total global GDP is estimated by Goldman Sachs to increase 2.7%, with China (4.5%) and India (6.3%) the growth leaders.
“A key reason for optimism on global growth is the dramatic inflation decline over the past two years,” said Jan Hatzius, chief economist at Goldman Sachs. “This directly supports real income because price inflation has fallen far more quickly than wage inflation.
“We expect U.S. productivity growth to remain significantly stronger than elsewhere, and this is a key reason why we expect U.S. GDP growth to continue to outperform,” he said.
Despite what some see as an overall favorable outlook for the economy, the furniture industry, which has struggled coming out of its COVID nesting bump, is still expected to lag.
Furniture Today’s recent survey on tariffs revealed concerns about price increases that would need to be passed along to consumers who have already shown reluctance to buy big-ticket items and a possible need to explore new foreign and domestic sourcing.
Additionally, the industry experienced major retail closings throughout 2024, including the loss of Top 100 retailers American Freight, Conn’s/Badcock and Sam Levitz and a major cutback in locations from Big Lots, shrinking the industry by hundreds of storefronts.
As a result, Furniture Today Strategic Insights is forecasting furniture stores sales to grow modestly at 0.3% in 2025 and consumer spending on furniture and bedding to rise by 1.7%, coming off a 2024 when estimated consumer spending on furniture and bedding was down 3% and store sales were off by 4.9% over the previous year.
Consumer spending is expected to improve in the fourth quarter but, as the S&P Global Chief Economist Satyam Panday explained in his Q1 2025 outlook: “The days of extraordinary leaps are likely behind us. Since the monthly growth rate of real personal disposable income has been lagging the growth rate of consumer spending the past six months, households’ aggregate spending is likely to ease in the coming quarters.
“Cost fatigue, especially from higher costs of nondiscretionary services, is likely to curb growth in consumer discretionary spending, including on holiday shopping. Cost fatigue likely means that value proposition is going to drive spending decisions more in the future,” said Panday.
Housing’s turn to shine?
Although a direct correlation between a robust housing market and more furniture sales isn’t a given, the industry still keeps a watchful eye on the health of the housing sector, counting on an upturn to spur some percentage of buyers to invest in new home furnishings.
Looking ahead to 2025, Skylar Olsen, Zillow’s chief economist, expects better times for home buyers. “Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became. More inventory should shake loose in 2025, giving buyers a bit more room to breathe.”
Mortgage rates, which fluctuated during 2024, are predicted to ease somewhat from the current near 7% level and end 2025 closer to 6% or slightly below.
National Assn. of Realtors Chief Economist Lawrence Yun said the days of low mortgage rates are in the past, although they are trending down.
“Are we going to go back to 4%? Per my forecast, unfortunately, we will not. It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5% to 6.5%,” he said during an economic and trends forum in early November.
Yun projects existing home sales will increase by 9% and new home sales by 11% year-over-year in 2025. However, he also foresees the continued rise in median home prices to $410,700, a 2% increase over 2024.
Homeownership among younger Americans remains low, said Yun, and first-time home buyers continue to struggle to enter the market.
In its forecast, Realtor.com Chief Economist Danielle Hale said the industry should expect home sales growth around 1.5%, which she attributed to broader economic factors more so than new federal policies, while home prices will be up by 3.7%.
“While President-elect (Donald) Trump can work quickly with his administration to implement some regulatory changes, other policies that will affect housing, such as tax changes and broad deregulation, require the cooperation of other branches and levels of government,” said Hale.
“The size and direction of a Trump bump will depend on what campaign proposals ultimately become policy and when. For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors. The new administration’s policies have the potential to enhance or hamper the housing recovery, and the details will matter,” she said.
Hale put mortgage rates above 6% for most of the year, edging down to round 6.2% by year end. Rent prices will even out, she said, as more inventory coming on line.
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