November 18, 2024

Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR, your apolitical and unbiased source of economic intelligence, and today I wanted to talk about the election. You might hear me sigh a little bit as I say that. Disruptive time, I know, for everyone as we try to internalize the election results. I sigh as an economist because, believe it or not, there’s fewer changes that we worry about immediately after we see election results than you might realize.

That’s really what I wanted to highlight here today, is we get so many questions of how does this change your forecast for 2025? If you followed ITR for a long time, you know that our stance is apolitical and that we could really care less who’s running the country in terms of personal opinion. Our goal is really to focus on policy and what that means for the economy.

Now, in 2025, it’s very unlikely that we’re going to see anything other than potentially minor revisions to our macroeconomic outlooks. Alan Beaulieu, wrote about this in the latest executive summary in the Trends Report and Alan really focused on three things that I wanted to bring up as we digest the election here at ITR. There’s really three factors we look at in 2025. It’s the election and policy, it’s exports, and it’s monetary policy, and Alan highlighted these.

Now, as we look at 2025, it’s likely going to be months before we know what policy and programs will be put in place. especially for 25, but in the years to come as well. And our history again suggests there’ll be little to no immediate changes, especially as this policy implementation can take many months. And ITR is actually hosting a policy summit in March, 2025 and we’ll have more details coming your way about that. However, it’s very unlikely that anything announced in the first half of 2025 again will cause more than a minor revision, if any at all, to our GDP and industrial production forecasts. So again, you can be pretty confident. We are very confident here at ITR, but I know there’s hesitation out there anytime there’s an election. you can be confident GDP is going to grow in 2025.

If we look all the way back through history, the average growth in the first year of presidential terms between 1961 and 2021 was 3.5%. And right now for 2025, we’re forecasting 2.5%. Also, corporate profits typically move higher in the first year post-election, actually 13 out of the 16 first years after previous elections, we’ve seen corporate profits move higher. So all of history tells us, and along with our current economic forecasting, that it’s important that we make plans for growth in 2025 with likely little to no immediate changes to that expectation.

We also spend a lot of time looking at exports as it follows in the election. And if you look at inflation adjusted exports right now, they’re currently at a record high. And that bolsters our confidence in terms of GDP growing in 2025. Now, also when we look at monetary policy, the Fed is loosening their monetary policy and they’ve recently over the course of the past few months have actually lowered the Fed funds rate by about 75 basis points. So when we look at the loosening of monetary policy, when we look at exports at a record high, when we look at GDP and corporate profits typically grow in the first year after elections, there’s a lot to be excited about in 2025. And again, goes back to my sigh at the beginning, which is there often is little change to the economy in the year immediately following the election. And often if there is change, it’s typically good news.

Now, there are things that I want you to be considering as we look at planning for the coming years. First, are you prepared to take on this economic growth in 2025 and ’26? Again, hopefully I’ve provided enough detail so far on why we see some growth coming our way. You really need to evaluate your human and physical capital for your markets. Now, the reason I say evaluate that capital is because with how significant growth is in ’25 and ’26, my biggest concern is that we’re actually going to find ourselves capacity constrained in terms of being able to take on this growth rather than being worried about if we will see growth. So I think you really need to have those plans in place now so you’re ready to take on this demand.

One thing I do watch closely is tariffs and the impact that tariffs could have on the economy. And so I would also be asking yourself, how are you going to protect your margins as input costs rise? Because typically we see, some higher input costs as a result of tariffs, especially if you’re sourcing from overseas. And that would bring me to my last question, which is can you diversify where you’re sourcing some of your raw materials products or move them closer to home? Because tariffs are likely to be something that is impacting our lives as we move forward here.

So as you take, I know there’s a lot to focus on for ’25, but we see generally a lot of good news out there, at least if you’re in the growth mindset. But I want to remind you to zoom out. We still have the 2030s projected despite the results of this election. That’s not changing our thought process on the next major downturn in the 2030s. So ensure that as you’re making all of these near-term plans and investments, you’re preparing yourself for that downturn that we still have planned and still expect to see coming at the end of this decade.

And if you need more help planning for the 2030s, we are forecasting what that environment will look like, not just for the economy, but with specific businesses through our Financial Resiliency program. So please reach out if you’d like to know more about what the 2030s might look like for you.

For now, ignore some of that political noise. We’re going to keep you updated on all the policies that might come our way and how that’ll impact the future. That’s our job. And get ready for this growth that we’re expecting to see in the coming years. Just as a reminder, please like and subscribe wherever you listen to your podcasts. Thanks for joining me on this episode of TrendsTalk and I look forward to speaking with you on the next one. Thanks so much.