U.S. Economic Outlook

Report Summary -

Equipment & Software Investment: In the third quarter, E&S investment expanded by 7.5% (annualized), the second consecutive quarter of solid growth. The strong performance over the last two quarters has been driven by aircraft investment, which has more than doubled since Q1. Growth in computer equipment and communication equipment has also been strong, while construction machinery investment contracted again.

Momentum Monitor: As of December, eight of the 12 tracked verticals are demonstrating weak momentum relative to historical averages, including large verticals such as Trucks and Other Industrial Equipment. More positively, six of 12 verticals are exhibiting recent momentum that is stronger than historical norms, including Computers and Mining & Oilfield Machinery. Overall, we expect moderate equipment and software investment growth rates during the first half of 2025.

Fed Policy: The December employment confirmed that the labor market remains generally healthy, with 227K jobs created in November and upward revisions to the previous two months’ data. These data align with Fed Chair Jay Powell’s description of recent economic performance as “remarkably good” and “not sending any signals [for] the need to be in a hurry to lower rates.” Nonetheless, the market-implied probability of another rate cut in December is 86%. Looking to Fed policy in 2025, FOMC members will be carefully following and evaluating upside risks to inflation and downside risks to employment, including the extent to which the incoming Trump administration pursues broad-based tariffs or large-scale deportations, both of which could put near-term pressure on the economy.

U.S. Economy: The U.S. economy continues to perform remarkably well compared to its international peers. Despite the unprecedented downturn in early 2020, the U.S. economy is roughly 11% larger in inflation-adjusted terms than it was at the end of 2019, faring far better than other major economies. The combination of a strong labor market, rising household wealth, and resilient consumer spending boosted growth in 2024 and should continue to do so next year. Indeed, businesses are feeling more optimistic about their prospects in 2025, in part due to the prospects of lower taxes and less regulation under the incoming Trump administration and a Republican-controlled Congress. Still, the policy landscape is uncertain: while it remains to be seen whether the President-elect follows through on campaign promises to institute broad-based tariffs, lower the tax rate for U.S. manufacturers, or repeal incentives and rescind unobligated funding for clean energy projects, these will be important developments to monitor.