Chapman: middling economic growth in 2025

When he is inaugurated as president again on Jan. 20, Donald Trump is going to find it difficult to push economic growth above its current sluggish rate. That’s according to the Chapman University’s Economic Forecast for 2025, given Dec. 12 before 800 local business and community leaders.

Economist and Chapman President-emeritus Jim Doti explained the main problem remains nagging annual inflation expected to be 3%, which is above the Federal Reserve Board’s 2% target. Indeed, that morning the Wall Street Journal headlined, “Inflation Bubbles Up Again,” with the U.S. Labor Department reporting a November rate of 2.7%. Doti said in 2025 the key fed funds rate, the rate banks lend one another overnight, likely will be cut two times, not the four times many economists are expecting – from the current 4.74% to 4.10% in Q4 2025.

A factor in the Fed’s caution, Doti said, “is the federal government spending way more than it’s taking in.” The fiscal 2023-24 deficit of $1.8 trillion will rise to $2 trillion for the current 2024-25 fiscal year, which began on Oct. 1. That’s on top of the existing national debt of $36 trillion.

“While there’s a short-term benefit from the deficits, long term is when you pay for it,” he warned. The yearly payments on the debt now amount to $1.2 trillion, more than goes to national defense.

For the interest rates consumers pay on home loans, he expects a drop from 6.3% to 6.0%. “That’s not the kind of decrease that will lead to a strong recovery in the real estate industry,” he notes.

On Trump’s policies, Doti expects the threats of imposing high tariffs on Mexico and Canada are just a starting point and will be negotiated down to 10%. Likewise on immigration, Doti said the actual limitation and deportation programs likely will be less extreme than touted during the presidential campaign. Both actions will bring slight increases in inflation. After all, one is a tax increase and the other could cut into lower-wage workers. There are always trade-offs.

For California, Doti projected job growth of 1% in 2025, slightly higher than the national 0.8% rate. But he pointed to the cumulative jobs growth from 1999 to 2023. The U.S. rate was 20%. Below it was high-tax New York at 15%. Above it a bit was high-tax California at 26%. But way above it were low-tax Florida at 43% and Texas at 51%. Why did our state grow despite high taxes? Silicon Valley and its high-paying tech jobs “propped up California.”

For Southern California, payroll employment from 2018-23 soared 11.5% in the Inland Empire and a strong 4.7% in San Diego County, above the 2.7% in Silicon Valley. But growth was an anemic 1.7% in Orange County 0.6% in Los Angeles County.

A key number is advanced jobs, paying double or more base salaries. From 2019-23, they jumped 6.2% in Silicon Valley and a robust 3.4% in San Diego County. But growth was just 0.4% in Orange County and 0.2% in the Inland Empire, and even dropped 3.3% in Los Angeles County.

Everyone now awaits what Trump’s policies will bring. Except for Silicon Valley, it’s clear high taxes and a reliance on capital gains taxes in particular have left California less able to cope with any economic shifts.

Of course, Chapman’s forecast is just one and both politics and economics are complicated and can shift rapidly.  The looming threat of inflation is one that must be taken seriously and we hope the incoming Trump administration doesn’t get carried away.