U.S. Macroeconomic Indicators Vol IV, Issue 1

2024 Economic Wrap-Up: Stable Growth Continues

Heading into 2024, forecasters anticipated that real GDP growth and inflation would slow as unemployment would rise. The Federal Reserve Bank of Philadelphia’s (Philadelphia Fed) “Fourth Quarter 2023 Survey of Professional Forecasters” from November 2023 projected the median expectations for Real GDP of 1.7%, headline Consumer Price Index (CPI) of 2.5%, and unemployment of 4.1%. In the end, it appears that some of these forecasts came in near actual results, with CPI ending the year at 2.9% and December’s unemployment rate at 4.1%. GDP however exceeded these expectations for the year.¹

GDP rose at annualized rates of 1.6%, 3.0%, 3.1%, and 2.3% in the four quarters of 2024.² Full year 2024 GDP rose 2.8%, compared to 2.9% in 2023, and well above the Fed’s median forecast in December 2023 for 1.7% growth. The primary contributors to growth were investment, consumer spending, and government spending. Household spending on services was strong, while residential investment saw a rebound in Q4 2024.³

Inflation eases, but remains above the Fed’s long-term goal

Inflation registered at 3.1% in January 2024, above the Fed’s long-term goal of 2%, but an improvement from January 2023’s level of 6.4%. Since June 2023, sharp declines in inflation have ceased but have become more incremental. December 2024 saw some relief, with the CPI coming in at 2.9%, but also remaining above the Fed’s 2% long-term goal.

To combat inflation, the Fed raised its federal funds target range seven times in 2022, including two hikes of a half point and four of three-quarters point. The Fed also raised the range four times in 2023, followed by no rate changes from July 2023 to September 2024. In September 2024, the Fed cut its target range by half a percentage point and in November and December the target was cut by an additional quarter point. As expected, the Fed left rates unchanged at its January 2025 meeting. The Fed’s projection materials released in December indicate that it expects to lower the federal funds rate to a median of 3.9% by the end of 2025, which indicates further cuts during the year.³

The labor market is resilient

While the Fed maintained that labor market conditions remained solid throughout 2024, it did deem the economic outlook was uncertain enough to warrant three interest rate cuts, bringing the federal funds rate down by 1%.

Additionally, while job openings declined by 1.1 million throughout 2024, they continued to register around 9% above pre-pandemic levels, indicating stable employer demand. It is commonly accepted that the economy’s reactions lag monetary policy changes, so both inflation and unemployment could still register changes based on the Fed’s actions over the past two years.

In December 2024, job openings decreased by 556,000 to 7.6 million, the largest decline since October 2023. The categories of professional & business services and finance & insurance saw six-figure declines in openings in December, but the finance & insurance industry also added 70% of private-sector hires in the same month, potentially balancing out some of the drop in job openings.⁴

At the start of 2025, businesses are facing uncertainty around new policies, including tariffs imposed on the U.S.’s largest trading partners and potential mass deportations of undocumented migrants. These concerns may also contribute to potential labor market cooling.

Equity markets continue growth, but may face challenges in 2025

In 2024, the S&P 500, Dow Jones, and NASDAQ each hit multiple all-time closing highs. U.S. equities may have a tougher time continuing their strong performance this year because 2024’s gains included a high concentration of returns among a relatively small number of companies. The large U.S. tech companies, “the Magnificent Seven,” rose by 47% in 2024, compared to a 10% gain for median companies in the S&P 500. High valuations could be another headwind, with the U.S. stock market at a 20-year peak, even excluding the largest technology companies, according to Goldman Sachs.

Other potential macroeconomic headwinds such as geopolitical conflicts and the impact of policies involving tariffs and immigration. For example, new proposed tariffs on imports from China, Canada, and Mexico could potentially curtail U.S. GDP growth by as much as a 0.9 percentage point over the year.⁵ The policies could also contribute to a 0.6 percentage point increase in U.S. inflation over the same period.

On the other hand, major drivers of market performance in 2024 including the strength of the U.S. economy, potential future interest rate cuts, and investor excitement around artificial intelligence. These factors could continue to provide further momentum for stocks in 2025.

2025 economic outlook

Forecasters are more optimistic about 2025 than they had been going into 2024. Most forecasters expect GDP growth to slow slightly from 2024 but remain at healthy levels overall, with consensus being in the range slightly above 2%. The Philadelphia Fed’s “Fourth Quarter 2024 Survey of Professional Forecasters” from November 2024 shows a median forecast of 2.2% real GDP growth in 2025, a slowdown from growth in 2024, but still a more optimistic projection than the 1.7% forecast for 2024.

Going into 2025, recession fears have diminished, inflation is trending back down toward 2%, and the labor market has rebalanced but remains stable. Generally, it seemed that consumers were feeling positive about inflation and the labor market while businesses are optimistic about the introduction of beneficial tax and regulatory policies in the last few months of 2024. But consumer confidence weakened in January 2025 after ending 2024 on a strong note. The University of Michigan’s Survey showed that consumer sentiment dropped for the first time in six months, driven by concerns around the labor market and anticipated changes in policies.

While the Fed has plans for additional cuts in 2025, due to the economic outlook being uncertain, there does seem to be less uncertainty among forecasters going into 2025 than there was going into 2024.

The Philadelphia Fed’s first quarter survey reported a median risk of a negative quarter ranging from 9.7% to 23.3% for each quarter of 2025, compared to a range of 34.7% to 40.9% for each quarter of 2024, indicating that fears of recession have receded back towards a normal range.

After leaving interest rates unchanged at the latest Fed meeting in January, policymakers expressed concern that inflation progress appears to be stalling, and they note the potential impact of proposed tariffs on inflation. Chicago Fed President Austan Goolsbee stated, “If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it’s coming from tariffs. That distinction will be critical for deciding when or even if the Fed should act.”⁶ A resilient labor market and elevated inflation provide little incentive for the Fed to ease policy faster than expected. The Fed seems inclined towards a ‘wait and see’ approach in the near term, particularly given the heightened uncertainty around the Trump administration’s approach to immigration and tariffs and how that might affect the economy.

Changes To The Hart-Scott-Rodino (HSR) Premerger Notification Rules May Impact M&A

Enacted in response to concerns that anticompetitive transactions were being concluded before regulators could intervene, The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) established premerger notification rules and filing requirements with both the Federal Trade Commission (FTC) and the Department of Justice (DOJ). Since its passage, the Act has played a significant role in shaping M&A activity.

On February 10, 2025, the FTC voted unanimously to finalize changes to the premerger notification form and associated instructions, as well as the premerger notification rules implementing HSR.

These changes constitute the most substantial overhaul of HSR in 48 years, and they will most notably impact M&A by increasing the complexity and preparation time for filings.

Here’s a summary of the expected impact:

Increased preparation time
The FTC estimates each response will require 105 hours to complete, which is an average increase of 280% to prepare a filing under the new HSR Rules, with an even greater increase in preparation times for filings that disclose competitive overlaps or supply relationships.⁷

Enhanced disclosure requirements
Parties must now provide detailed narratives explaining the strategic rationale behind a transaction, comprehensive descriptions of their principal products and services, and any competitive overlaps, including customer and supplier overlaps. Additional new disclosure requirements also include disclosure of “Subsidies from Foreign Entities or Governments of Concern,” disclosure of Officers and Directors for Section 8 of the Clayton Act Assessment (Interlocking Directorates), and disclosure of Ownership Structure. Where private equity sponsorship is involved, the acquirer must provide an organizational chart, if it exists, that shows the relationships between a sponsor’s affiliates and associates.⁸

Increased documentation
In addition to the new requirements, the coming changes also expand existing documentation requirements, including an expansion of Item 4(c)/(d) documentation, a category which will now be known as “Business Documents.”

Here is an overview of the key changes:

What’s New:

• Provide description of competitive overlaps
• Describe supplier relationships
• Explain deal rationale
• Disclose certain foreign subsidiaries
• Provide customer lists in overlapping areas or in vertical relationships between the parties
• Interlocking directorates assessment
• Disclose ownership structure

What’s Changed:

• Item 4(c)/(d): provide documents for supervisory “team lead”
• Item 4(c)/(d) will now be called “Business Documents,” comprised of transaction-related documents and certain plans and reports
• Provide regularly prepared plans and reports that are submitted the CEO, covering markets, competition and competitors, related to overlapping products
• Submit “Item 4” draft documents shared with any board member
• Translate foreign language documents
• Increased disclosure requirements related to minority shareholders, investment funds and other investment vehicles
• Seller must provide information related to acquisitions from the past 5 years

Overall impact to M&A buyers and sellers

While these changes aim to provide the FTC with a more comprehensive understanding of proposed transactions, they also introduce new challenges for companies navigating the M&A landscape. These amendments will require companies to allocate more resources and time to compiling the newly required information, potentially extending deal timelines. The proposed rules also raise the possibility of enhanced (or at least delayed) scrutiny of transactions that may previously have not triggered any additional questions.⁹

Firms entering into an M&A deal after the new rules go into effect must build this into the plan when estimating the date at which any deal could potentially close. Private equity firms in particular, and generally any entities with complex structures, may face heightened scrutiny due to these expanded disclosure obligations. Additionally, the increased burden may influence strategic considerations, prompting parties to initiate the HSR filing process earlier in transaction planning to accommodate the extended preparation period.

Sources:

1. https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/survey-of-professional-forecasters
2. https://www.bea.gov/news/2025/gross-domestic-product-4th-quarter-and-year-2024-advance-estimate
3. https://www.ey.com/en_us/insights/strategy/macroeconomics/us-gdp
4. https://www.hiringlab.org/2025/02/04/december-2024-jolts-report-resting-on-a-stable-foundation/
5. https://www.conference-board.org/publications/US-tariff-plan-would-cut-GDP-growth-swell-inflation
6. https://www.cnbc.com/2025/02/05/fed-officials-are-raising-concerns-about-trumps-tariffs-and-inflation.html
7. New HSR Rules, pp. 379-80, pp. 437 (Appendix B – Acquiring Person, p. 12, 17), 453 (Appendix B – Acquired Person, pp. 11, 15).
8. https://www.whitecase.com/insight-alert/finally-final-hsr-rules-key-takeaways-new-hsr-pre-merger-notification-form
9. FTC Proposes Dramatic Expansion and Revision of HSR Merger Notification Form – Gibson Dunn