2024 Economic Outlook: A Quarterly Breakdown for Advisors

Morningstar’s latest population forecasts incorporate expectations of moderate immigration tightening during the second Trump administration, but we think mass deportation of several million is unlikely. Our GDP forecasts have ticked down slightly through 2028, owing to an upped probability of tariff hikes. Altogether, we’re incorporating a probability-weighted impact to cumulative real GDP growth through 2028 of 0.32% owing to higher tariffs. Our lower immigration forecast slightly detracts from growth but is offset by other updates to our labor market forecasts.

By understanding the latest economic trends, financial advisors can deliver quality advice and help clients capitalize on these forecasts. Our 2024 Economic Outlook explores predictions, trends, and insights for Q2 2024.

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After soaring to 6.6% in 2022 (the highest since 1981), inflation dropped to 3.7% in 2023 and is likely to post at 2.5% for 2024. Altogether, we project an average inflation rate of 1.9% over 2025-28.

Housing inflation should drop considerably in 2025. Easing supply constraints should continue to exert downward pressure on durable goods and other areas. The slowdown in GDP growth that we expect for 2025 and 2026 should add slack into the economy, helping to reduce inflation economywide. This effect will partly channel through the labor market, where we expect further cooling to slow wage growth.

Altogether, we’ve upped our expectations for inflation over 2025-28 by a cumulative 0.2% owing to the probability-weighted impact of higher tariffs, slightly below the 0.3% negative impact to real GDP growth. Full implementation of the tariffs would probably push the price level up by 1%-2%. Changes in immigration policy could also be inflationary, but we’re skeptical that mass deportations affecting wide swaths of the workforce will be implemented.

The housing component of the main price indexes (the CPI and PCE) responds with a substantial lag concerning market conditions. Because of this lag, official shelter inflation is still high compared with prepandemic levels, owing to the accumulated runup in market rents since 2021. But market rent growth has decelerated sharply in response to falling housing demand and expanding apartment supply, standing at about 2% year over year as of June. The accumulated gap between market rents and the housing inflation index is closing. This will cause housing inflation to inevitably fall from current levels (5.3% year over year). The exact timing is somewhat uncertain, but we expect a gradual decline over the rest of 2024 and 2025.

Real personal consumption was up 3.7% in the third quarter (quarter over quarter, annualized). In year-over-year terms, consumption was up 3%, evincing a gradual uptrend compared with early 2024. The uptrend has been driven by a rebound in goods spending growth. The October retail sales data did nothing to dispel this solid picture of consumption growth.

After 2.5% growth in 2023 and 2.6% in 2024, we expect growth in real personal consumption to decelerate to 2.0% in 2025 and 1.9% in 2026. We believe consumers will pull back slightly with the goal of pushing savings rates closer to prepandemic levels.

While the recent upward revision to personal income and saving estimates does make consumers look somewhat less spendthrift than before, it’s still the case that the savings rates are below prepandemic levels. The personal saving rate was a paltry 4.3% in the third-quarter 2024, 3 percentage points below the 2019 average of 7.3% or 2.2 points below the 2017-19 average of 6.5%.

The delinquency rate on all household debt is still below prepandemic levels. This is driven greatly by student loans, where borrowers benefited from a three-year moratorium that ended in October 2023 and other relief programs. Mortgage delinquencies are still slightly below prepandemic levels, with a large share of borrowers having locked into low rates during the pandemic.

However, forms of borrowing more sensitive to market interest rates have shown a worrying rise in delinquencies. Auto loan delinquencies have increased steadily over the past two years and now stand in line with prepandemic levels. Credit card delinquencies are now nearly 3 percentage points above prepandemic levels.

The three-month average of the unemployment rate has ticked down to 4.1% as of October, after reaching 4.2% in August 2024. The layoff rate remains near historical lows, at 1.1%, a tick below the prepandemic average of 1.2%. Thus, we don’t have a vicious cycle of layoffs leading to household spending cuts, which begets further layoffs.

The gross hiring rate stood at 3.4% in September, down from a peak of 4.5% in late 2021 and versus the 2019 average of 3.9%. That’s mostly translated into a fall in quits rather than a fall in net hiring, as the frantic job hopping of 2021-22 has disappeared. Altogether, the labor market tightness seen in 2021-22 is entirely gone thanks to the drop in labor demand and improvement in labor supply.

Our composite measure of wage growth stood at 4.4% year over year in the third quarter of 2024, down markedly from the peak of 6.3% in the first quarter of 2022. Assuming productivity growth of 1.5% and a constant labor share of GDP, 4.4% wage growth is consistent with inflation running at 2.9%.

The job openings rate has dropped to a three-month average of 4.5% as of September, which is right in line with the 2019 average. That marks a hefty drop compared with the recent peak of 7.3% in April 2022, which was the highest rate since the data began in 2001. This is another indicator that labor market excesses have been corrected. In contrast to many economists’ predictions, the job openings rate returned to normal without a massive uptick in unemployment.

With employment growth slowing, we expect the unemployment rate to rise to 4.4% on average in 2025 and 4.6% in 2026, up from an average of 3.6% in 2023 and an average of 4.0% in 2024. This would be quite mild compared with US economic slowdowns in recent decades, which is consistent with our expectation that the US will avoid a recession. Nonetheless, this cooling of the labor market should be sufficient to return wage growth back to normal.

Immigration surged over 2022-24 to the highest rate on record, briefly pushing US population growth to its highest levels since the early 1990s. We would’ve expected immigration to drop to more normal levels regardless of the 2024 election outcome. But in addition to stanching the recent flood of new immigrants, we expect a second Trump administration to push the immigration rate below its prepandemic baseline.

We project an average net migration rate of 0.27% over 2024-28, below the 2010s average of 0.42%. This is consistent with a moderate tightening of immigration restrictions compared with that decade. But we see mass deportation of several million immigrants as being unlikely.

Administrative data on legal immigration, like obtaining a visa, did not show a drop-offduring Donald Trump’s first term as president. Trump also didn’t erect major barriers to the main channels of legal immigration. However, administrative data on unauthorized immigration is much harder to interpret. At least qualitatively, the data doesn’t support a massive decrease in the net flow of unauthorized immigrants during Trump’s first term, as his attempts at restriction were stymied by several forces. We saw neither a decrease in border encounters nor an increase in deportations.

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