As we approach the end of 2024, the U.S. economy continues to demonstrate its characteristic resilience, even amid ongoing inflationary pressures.
U.S. consumer sentiment rose in December, reaching 74.0, up from 71.8 in November according to the University of Michigan. This improvement suggests growing optimism among consumers, a critical driver as personal expenditures comprise two-thirds of GDP. The third estimate for year-over-year change in real gross domestic product, or GDP, in the third quarter was revised from 2.8% to 3.1%, largely attributable to an increase in consumer spending, exports, nonresidential fixed investment and federal government spending. At the Federal Reserve’s meeting on Dec. 18, GDP growth forecasts were revised up to 2.1% for 2025, which is slightly above trend growth for the U.S. This expectation for stronger growth has inflationary implications, which I discuss below.
Similarly, the Fed expects slightly lower unemployment with a rate hovering around 4%. The November data shows that the labor market held steady, with the U.S. unemployment rate ticking up slightly to 4% from 3.9% in October. Job openings, however, rose to 7.74 million in October, a 5% month-to-month increase, though down 10.8% compared to the previous year when we were still adjusting from the pandemic. The October uptick in job openings is significant, however, in that it signals a still-resilient labor market and strength in the broader economy.
With people employed and spending, it is then not surprising that inflation saw its largest increase in seven months, with the U.S. Consumer Price Index up 2.7% year-over-year in November, compared to 2.6% in October. Excluding food and energy, core inflation remained steady at 3.3%. The Fed moved forward with a 0.25% cut to interest rates this month as expected. However, the Fed is now banking on higher inflation in 2025 amid expectations for President-elect Donald Trump’s tariff policies, which I provided detail on in November’s month-end economic article. As such, the Fed adjusted the number of anticipated interest rate cuts from three cuts to two in the coming year with an expected 4% rate by the end of 2025. The monthly average prime rate (7.81%) and average Federal Funds rate (4.64%) both decreased; however, the average 30-year mortgage rate climbed to 6.81% because this rate is more closely tied to longer-term inflation expectations. This, of course, has continued affordability implications for the housing market overall.
At a local level, it seems higher interest rates are perhaps influencing the purchase of big-ticket items. El Paso County new vehicle registrations were down 22% in November compared to November 2023. That’s quite the decline, especially in the context of U.S. vehicle sales up 6.6% year-over-year. Below I discuss that local employment is not as robust in 2024 as it was in 2023, and that may be a factor. The purchase of luxury utility vehicles held steady with a modest 1.3% in November compared to November 2023, implying that even higher-income (local) individuals are not spending as freely as they were a year ago.
Real Gross Metropolitan Product (GMP) lags about a year, so 2023 data was just released, but it did show good news. GMP increased 4.4% in 2023, and this increase is notably higher than 2022’s rate of only 1.7%. Remember, however, that these rates are all relative to the prior year and 2021 had a high GMP growth rate of 5.8%, so it was hard to exceed that by much in 2022 (thus the “low” 1.7% rate that year).
Nonetheless, I am still happy with the 2023 growth rate, which places us in the top 20th percentile within the U.S. with a “real,” or inflation-adjusted, economy (as measured by GMP) of $43.6 billion. Our local economic growth outpaced the average U.S. metropolitan areas’ growth of 2.7% and matched the state of Colorado’s growth (also 4.4%). Among peer MSAs, only Austin, Texas, (up 4.5%) and Huntsville, Ala., (up 6%) posted stronger growth. The monthly report on our website shows GMP contributions by sector highlighting the largest local industries as measured by dollars.
On the labor market side, El Paso County’s unemployment rate ticked up to 4.6% in November from 4.5% in October. The state and the U.S. experienced similar, marginal increases in unemployment. The number of job openings for El Paso County dropped from 18,611 in October to 17,266 in November while the number of unemployed rose from 17,450 in October to 17,805. This resulted in the number of workers per available job rising from 0.94 to 1.03. This increase means there are now more job seekers than job openings, which could reduce pressure on wages. In my mind, this isn’t favorable because we still have a local deficit in wages. The release of the Bureau of Labor Statistics Quarterly Census of Employment and Wages 2024 Q2 report shows this. In the second quarter, average annual wages in El Paso County were 9.2% lower than U.S. wages and 15.1% lower than Colorado wages, although that is an improvement from 14.1% lower-than-the-U.S. and 18.7% lower-than-Colorado wage rates in the first quarter of this year.
In terms of the number of employees by industry, the quarterly employees in the top 12 sectors showed growth in all the same top sectors from the previous quarter. The annual job changes highlight new regional jobs, which can provide a hint on business and employment growth this year. Here I see slowing growth: 2024 Q2 employment grew by +2,938 employees in Q2 as compared to 2023 Q2, and this was slower than the +5,284-employee growth observed in Q1 (also year-over-year). This suggests that GMP (discussed above) for 2024 may be lower than it was in 2023 because employment often mirrors overall (GMP) economic growth.
El Paso County’s high school graduation and earnings data for 2023 highlight continued disparities across districts: Cheyenne Mountain had the highest graduation rate at 96.6%, while District 49 had the lowest at 55.7%. However, when excluding D-49’s largest online school, which provides graduation opportunities for many students who have had challenging circumstances and would perhaps not complete high school otherwise, its graduation rate improves to 88% (matching last year’s recalibrated percentage). Five districts in the county had graduation rates below the state average of 83.1%, which is an improvement from last year when we had seven districts below the state average.
Median earnings for full-time workers between 2019 and 2023 also varied widely. Lewis-Palmer D-38 led the region with average median earnings of $96,438, while Miami/Yoder reported the lowest at $42,568. These disparities underscore the importance of workforce development initiatives that have gained traction across the state and in our region.
In the third quarter, Colorado Springs saw a 1.3% year-over-year increase in the Department of Housing and Urban Development apartment vacancy rate with a vacancy rate of 12.7%. This is largely due to a number of new apartments coming onto the market that outpaced absorption at the time of data collection.
I recently discussed how spikes in vacancy rates due to new apartments coming onto the market can be used to say that Colorado Springs is overbuilding. I am not convinced that is the case, but I do worry about the availability of affordable units. On that front, the HUD report indicated that the average monthly rent for apartments in Colorado Springs was $1,438 in Q3, an increase of $2 per month compared to a year ago. Several experts are worried about housing affordability worsening in the coming years.
Colorado Springs recently was forecast as the nation’s No. 1 housing market for 2025, according to one source, with an expected 27.1% jump in number of home sales and 12.7% predicted increase in prices in 2025 compared to 2024. We will see if that materializes, but we will certainly need to be strategic about providing more affordable options if we hope to continue to grow our (much-needed) local and state workforce.
While 2025 leaves a lot up in the air from a global and domestic macroeconomic picture, I do believe Colorado Springs is positioned to continue on a positive growth trajectory as we enter 2025.