Savannah Chamber

9 3 rate out of current income of 4 percent in 2025, which is the same as in 2024, but is only about half the pre-pandemic savings rate of about 8 percent. The low savings rate will help consumers sustain their spending as the economy slows and the labor market softens. In 2025, we expect an unusual degree of job security for an economy that is slowing. That will support consumer spending. We expect the unemployment rate to rise, but not very much and not fast. Stable labor market conditions will maintain consumer confidence. Because consumer confidence never rallied very much in the wake of the pandemic it should be easy to sustain. In addition, the low starting point for the anticipated rise in the unemployment rate is a positive for consumer spending. Because the labor market will not be quite as tight, compensation per hour will rise by about 2 percent in 2025 compared to 3 percent in 2024, and to 4 percent in 2023. Output per hour worked and unit labor costs will both rise by about 1 percent. Wage and salary income will grow, but the pace of growth will slow. We do not expect any major new federal government stimulus programs. In 2025, consumer credit outstanding will grow by about 5 percent, which is the same pace estimated for 2024. Credit will be slightly less expensive than in 2024, but much more expensive that just a few years ago. Nonetheless, recent inflation and deferred demand for vehicles will push consumers to use more credit. In 2025, we expect non-revolving credit to grow faster than revolving credit. In 2023-24, lenders tightened credit to customers, but we do not expect very much additional tightening in 2025. Non- traditional lenders will continue to offer credit to customers. Household balance sheets are in decent shape, which will support credit growth. As the economy slows, delinquent payments and bankruptcies will continue to increase, but to levels considered normal prior to the pandemic. Indeed, many households are still well positioned to take on and service additional credit. Debt burdens borne by many households are low. Households deleveraged in the wake of the Great Recession and deleveraging continued throughout the COVID-19 recession. Specifically, the ratio of debt service payments to households after tax income fell to 9 percent in 2021. The ratio rose to 10 percent in 2024, which is considered low. In comparison, the debt service ratio was 13 percent leading up to the Great Recession. Another positive for consumer spending is that many households have locked in historically low mortgage rates, but higher payments for property taxes and home insurance will offset some of the benefit of lower payments on principal and interest. We assume that wealth-effect spending will be a neutral force. In the wake of the pandemic-recession, the global savings glut caused the prices of most types of assets to be bid up. The runup in home prices boosted households' net worth. One reason we assume wealth-effect spending will not add much to spending is that when it comes to spending changes in households' wealth are more important than its absolute level. We do not expect major changes in households' net worth in 2025. For example, because US homes are moderately overvalued and income growth is slowing, home prices are unlikely to increase very much in 2025. Flat to slightly lower prices for homes will limit any gain in households' wealth. In addition, by historical measures, equities are very richly valued. We do not expect higher equity prices to add much to households' wealth in 2025. Indeed, equity markets will be vulnerable to correction. Bond prices are likely to increase in 2025, but not enough to add substantially to households' wealth. Although we do not expect changes in households' net worth to boost spending in 2025, a sharp reversal of wealth-effect spending is a plausible downside risk for consumer spending. Growth in household wealth increased over 2009-24, exceeding income growth in most years. Household wealth may decline in 2025. Nonetheless, due to large gains over the extended period, it would take a major collapse in home prices and/or a major stock market reversal to produce a dramatic decline in consumers overall spending. We do not expect especially sharp corrections in the prices of homes or equites, but should sharp corrections occur, households' spending would contract, the economic expansion would end, and a recession would begin. In 2025, spending for services will increase faster than spending for goods. The gradual rebalancing in the composition of consumer spending towards services and away from goods will continue. Among services, providers of health care, education, vehicle repairs, and childcare will see above average growth in spending. We believe that there is a strong possibility that the pandemic caused a structural

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