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The Key Takeaways
- Economists expect the unemployment rate to remain relatively constant in the coming year.
- It would be nice to have a steady job market after the roller-coaster that was the pandemic era and its aftermath.
- The current unemployment rate stands at 4,2%. This is still low by historical standards but higher than the 3.4% recorded last year, which was a 50-year record low.
Forecasters disagree on whether unemployment will worsen or improve in 2025.
Federal Reserve Bank of Philadelphia surveyed experts who predicted that the unemployment rate would rise by a small amount next year. It is now expected to be 4.3%, up slightly from November’s 4.2%, at the end of this year.
This is not a high unemployment rate by historical standards. Other words, the economists are not expecting a market boom or bust; instead they believe the current trend will continue.
The Change in Pace would come from a Stable Employment Market
Stability in the job market is a welcome change from the yearnings of recent years. Workers were in demand at the beginning of 2020 and unemployment was near a record low. After the pandemic, unemployment rates jumped to double-digits. As the economy began to recover, unemployment rates fell rapidly. By January 2023 the rate was at 3.4%, which is the lowest it has been since 1969.
The Federal Reserve, not by chance, began an interest rate increase campaign in March of 2022. They hoped to slow the rapid rise of inflation and raise borrowing costs across the board. Fed officials were concerned that a hot job market might trigger an inflation spiral, with price and wage increases.
The economy is resilient. Economists feared the Fed rate increases in 2022 could cause a slump and an increase in unemployment. Even so, forecasters predict that the high interest rates in 2025 will lead to a decline in job creation.
Vanguard economists predict that the unemployment rate in 2025 will reach 4.4%, its highest level since 2021. Prior to the pandemic of 2017, unemployment was at this level.
The University of Michigan economists made the same forecast. They noted that unemployment rates appeared to be slowly increasing in the second half of the year 2024, and predicted a peak of 4.4% by 2025.
Goldman Sachs was more optimistic in its forecasts, predicting that unemployment would drop to 3.9% at the end of 2025.
Can There be an Unpredicted Change?
But those forecasts all come with a considerable amount of uncertainty, especially as the economy's trajectory could change sharply depending on whether the government implements some of incoming president Donald Trump’s more extreme policy proposals from the campaign trail.
Goldman Sachs economists said that Trump’s promise to implement steep tariffs against foreign goods would be the greatest risk for the economy if it were to come to pass.
Even with all of the economic turmoil of recent years, consumer spending has increased.
“Despite the uncertainty of a new presidential administration and some signs of economic and demographic headwinds on the horizon, the economy appears well-positioned to navigate 2025,” In fact, economists wrote about the issue.
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