Economy ‘in a sweet spot’ but some concerns ahead

Controlling runaway government spending will be a major challenge facing the U.S. economy as a new administration and a new Congress prepare to take office in January.

That was the word from Marc Cooper, CEO of Solomon Partners, during a recent Conference Board webinar.

“I think it’s daunting,” he said of government spending. “The amount we spend is out of control in my view. That’s no political side, that’s simply how our government has worked for so many years.”

Cooper called for curtailing government spending – not on entitlement programs – but what he called “spending in ways that are non-growth-oriented and wasteful.”

The gravest long-term risk to the U.S. economy, Cooper said, is the deficit. “We lose the possibility of being the reserve currency, and then obviously, we're in a world of hurt,” he said. “I don’t think we can tax our way out of it and still have an economy that’s globally competitive.”

Cooper also said that immigration is an important factor in the U.S. economy. He said he is hopeful that President-elect Donald Trump’s immigration policies “won’t be an ax but will be a scalpel – pulling out those who are undesirable and being sensitive to those who might be illegal, but have been here productively.”

He cautioned that the U.S. “can never close our borders. We could never be, in my view, an economy that doesn't welcome those from the outside who can be productive parts of our society, because that's what made this country great, and that's what will continue to make this country great. Our country was built on immigration; our success is built on immigration. Bringing in talent is what we are all about and we should continue to have a thoughtful immigration policy that continues to bring in the best and brightest, continues to bring in labor to a growing economy. But we must have a policy where you go through a process, you don’t stream over a border.”

After two years of what he called “tepid merger and acquisition activity” in 2022 and 2023, Cooper said 2025 will be a good year for M&A, a year in which the private equity market will rebound.

Cooper described 2024 as “a good year.”

“CEO confidence levels are up. People are bullish about the economy.  We did hit the proverbial soft landing, and people are excited about it,” he said.

The incoming Trump administration will be “a far more pro-business, less regulatory environment,” Cooper said.

However, he believes Trump’s plans to tariff imports “are questionable.”

“We saw in the first Trump administration the effect that tariffs had on imports from China,” he said. “But I am cautiously optimistic that tariffs will drive onshoring, nearshoring, and improved economic activity and strength in the U.S. economy.

“I am very bullish about business in this new administration and very bullish about the geopolitical scene.”

Pro-business policies ahead

Much of Trump’s economic proposals “are very pro-business and lean more toward free markets than past administrations have,” said Stellar Tucker, head of technology, corporate and investment banking with Truist Securities.

However, Tucker said she is concerned about continuing to control inflation. “I would hate to see that some of the administration’s more aggressive plans would set us back in that regard,” she said.

“If we continue to get the Federal Reserve comfortable with easing monetary policy in 2025, we will provide a safe environment for business growth and consumer confidence.”

Confidence in the economy is high

Consumer and employer confidence is strong as we close out 2024 and look ahead to a new year, said Dana Peterson, The Conference Board’s chief economist.

“The U.S. economy is in a sweet spot right now,” she said. “Most of those who want to work are working. Consumers are buying goods and services, and doing that with incomes that are still rising at a rapid clip. A record 40% of CEOs we surveyed said they are still hiring. As long as consumers are still working, they have confidence in spending.”

Peterson also expressed a concern about inflation spilling over into next year.

“We’re seeing housing costs cooling, but not as rapidly as one would expect. Insurance costs are rising for health, car and home insurance. I think heading into next year that inflation will be stickier than expected. We won’t get inflation back to the Fed’s target of 2% until the end of 2025.”

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