Now that full-year GDP numbers are out let’s review the major economic indicators for 2024. Population grew by 0.5% or 1.7 million (same as 2023) and there are now 338 million Americans (Exhibit 1). Just for reference, there are about 8.16 billion people in the world, so the U.S. represents just 4.1% of worldwide population. Moreover, the world population is growing faster than ours, so we are slowly becoming a smaller slice of the pie.

The employment situation remained stable with the economy gaining 2.2 million jobs (up 1.4% year-over-year). Those numbers are slightly lower than 2023’s but are still solid. The unemployment rate actually increased slightly to 4.1% as more people reentered the workforce. Likewise, the U-6 rate inched up to 7.5%. This one is a broader measure defined as “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons.” The labor market remains very healthy if not quite as tight as the last several years. There was a minor freakout in the economic circles in summer of 2024 as something called the “Sahm Rule” briefly flashed recessionary caution signs, but it promptly reversed to normal after a couple of months.

Exhibit 1 – Employment

U.S. real GDP grew 2.8%, decelerating slightly from 2023 (Exhibit 2). Inflation decelerated further to 2.9%, still above the Fed’s 2% target but much improved from 7% levels of 21/22. It seems to be stuck at around the 3% level leading the Federal Reserve to pause its rate-cutting campaign.  Wage growth was 3.9%, again higher than general inflation. The U.S. Dollar has appreciated by almost 8% making things difficult for international investments.

Exhibit 2 – Growth & Inflation

Federal finances remain a mess (Exhibit 3). Public debt increased by another $2.2 trillion or 6.5%. It grew to 122% of GDP which is quite high – only Japan, Greece and Italy have more debt relative to their size. Federal budget deficit increased by 10% in 2024 and amounted to $1.9 trillion or 6.4% of GDP. All of this is happening during a time of peace and prosperity, so if we have an emergency that requires high public spending… We will see what the new Republican government does to contain debt and deficits, although there seems to be little appetite to address it.

The lone bright spot in this table is the Federal Reserve balance sheet, which reduced by 9%. It is still $6.6 trillion (near double what it was just before COVID). At least we are moving in the right direction and are 24% below the peak in June 2022.

Exhibit 3 – Debt & Deficit

Interest rates remained in focus during 2024 (Exhibit 4). The Federal Reserve cut the Fed Funds rate by a full percentage point starting with 0.5% in September, then two 0.25% cuts in November and December. Short-term market rates followed the Fed’s path with 3-month Treasury dropping by 1%. However, the 2-year rate didn’t budge at all, and the 10-year rate actually went up by 0.7%. Basically, the market is signaling that despite the Fed’s action, it is concerned about future inflation and levels of government debt (see above). Mortgage rates also went up (much to homebuyers’ dismay), with the 30-year at 6.85% and 15-year 0.85% lower at 6.0%.

Exhibit 4 – Interest Rates

So, what about the stock market fundamentals? S&P 500 earnings increased by a very healthy 9.5% (Exhibit 5). The P/E ratio increased by another 12.6%, leading to the index price appreciation of 23.3% (it’s a combination of a change in earnings and P/E). While earnings are healthy, most of the market appreciation in the last couple of years has come from multiple expansions, which might not be sustainable at these hefty 25x levels. Dividends increased by 6.4% but the yield dropped even further to a paltry 1.3%, which is one of the lowest on record.

Exhibit 5 – S&P Earnings

The housing market remained challenging last year, although there are some glimmers of hope (Exhibit 6). Existing home sales were flat at 4 million units, which is an extremely low level last seen in the depths of the Great Financial Crisis in early 2009. New home sales actually went up by 2.6% as homebuilders continue to see opportunity in low supply. Inventory of existing homes actually increased by a healthy 16% by number of units. But it still remains relatively low with 3.3 months’ supply (six is a balanced market). Home prices went up 4% to 6% depending on the metric. Our local Tucson market normalized somewhat, you can check out this Long Realty report for more details.

U.S. auto sales were fairly flat at 16 million a year. After big increases during the pandemic, new car pricing largely held stable throughout the last couple of years.

Exhibit 6 – Housing & Autos

So, there you have it – 2024 was quite a good year for the markets and the economy, now let’s see how well the Trump administration handles things in 2025.