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The Economic Landscape Awaiting President-elect Trump's Return
As 2024 draws to a close, the American economy is displaying remarkable resilience, with December's job numbers exceeding expectations despite global economic headwinds. This economic vitality raises intriguing questions about the state of affairs President-elect Donald Trump will inherit when he returns to the White House in January 2025.
The Historical Context of Presidential Transitions
Mark Zandi, chief economist at Moody's Analytics, offered a striking assessment to the New York Times, noting that Trump will inherit what he describes as an economy "about as good as it ever gets." What makes this observation particularly noteworthy is that the U.S. economy has achieved the rare distinction of growing more rapidly in its post-pandemic phase than it did before the global health crisis.
A Record-Setting Employment Picture
The unemployment rate of 4.1% that Trump will inherit is historically significant. Looking back through presidential transitions, only Richard Nixon in 1969 assumed office with a lower unemployment rate of 3.4%. This places the incoming administration in a remarkably strong position regarding employment, especially when compared to recent transitions: Joe Biden's 6.4% in 2021, Trump's own first term beginning at 4.7% in 2017, and Barack Obama's challenging inheritance of 7.8% in 2009.
Market Performance and Economic Indicators
The stock market has demonstrated exceptional strength, with the S&P 500 recording a 23.3% gain in 2024. This performance is particularly noteworthy in the context of presidential transitions, surpassed only by the 25.8% increase that preceded Ronald Reagan's inauguration in 1981.
Inflation, which proved to be President Biden's most significant political vulnerability, has moderated considerably. The November consumer price index showed an annual increase of 2.7%, slightly above the post-2000 average of 2.6% but comfortably below the post-1980 average of 3.3%.
Challenges Amid the Prosperity
However, this seemingly robust economic picture masks several significant challenges. The incoming administration will face some unprecedented economic hurdles:
Gas prices stand at $3.50 per gallon, the highest ever recorded during a presidential transition. The housing market presents particular concerns, with mortgage rates averaging 6.9% - the highest since George W. Bush's inauguration in 2001. These elevated rates, combined with high home valuations, have pushed housing affordability to near-historic lows.
Consumer Sentiment and Future Expectations
Perhaps most tellingly, consumer sentiment remains subdued, with the University of Michigan's consumer sentiment index registering 73.2 in the latest reading - a decline from both the previous month's 74 and the year's starting point of 79. This muted confidence appears to reflect multiple concerns:
The subtle interplay between market volatility, gradual increases in gas prices, and rising mortgage rates has dampened consumer optimism. Moreover, economists like Oliver Allen from Pantheon Macroeconomics suggest that anxiety about Trump's proposed economic policies may be affecting confidence levels. This is particularly evident in the sharp rise in one-year inflation expectations from 2.8% to 3.3%.
Looking Ahead
The labor market shows some concerning signals, with a decrease in voluntary job transitions. Carl Weinberg, chief economist at High Frequency Economics, points to significant uncertainty surrounding the incoming administration's economic policies. Key areas of concern include the potential impact of proposed tariffs on consumer prices, the economic effects of stricter immigration policies on the labor force, and the implications of tax cuts in an economy operating at full employment.
While the current economic indicators paint a picture of stability and strength, the underlying data suggests a complex and potentially challenging landscape awaiting the next administration. The combination of strong headline numbers and persistent structural challenges creates a unique economic environment that will require careful navigation in the years ahead.