A deceleration, but not a recession.
Experts generally agree on that outlook for the economy as we approach 2024. Following a post-pandemic period in which growth exceeded most projections, but concurrently sparked uncontrollably high inflation, Americans can now anticipate a time of decreased corporate activity.
However, while some economists maintain that there is still a chance of a recession, others believe that a “soft landing” is more likely. That much-discussed scenario is generally thought to entail slower inflation along with stable but gradual job growth.
“A soft landing is more likely to occur in 2024 than it was in 2023,” stated Greg McBride, chief financial analyst at Bankrate.
Many experts had predicted a recession in 2023, however this did not materialize. In fact, history may look back on this year as successful because of the low unemployment rate and the sharply dropping inflation rate.
The unemployment rate is at 3.7%, barely changing from 3.5% a year ago. Conversely, the yearly rate of inflation has decreased to 3.1%, which is less than half of the 7.1% rate observed in November 2022.
Consumer confidence has increased as a result. The Conference Board, a nonprofit business research organization, released its most current survey, and positive sentiment about the economy among consumers shot to the highest reading since July.
Alerts approaching
When taken in combination, all of these indicators suggest that a downturn is imminent. Since April, when it was as low as 3.4%, the jobless rate has increased. In June 2022, inflation reached near double-digit highs, but it hasn’t been able to drop below 3%. It has actually fluctuated within that 3% band for the past six months.
Regarding consumer confidence, it remains significantly lower than the peak observed in the spring of 2021 following the pandemic.
Senior vice president and chief economist at PNC Financial Services Group Gus Faucher predicted that as consumers cut back on their spending, job growth would stall and the unemployment rate would rise to about 4%.
Although the chance of a recession is still “elevated,” Faucher noted that it is unlikely to happen unless there is a major shock to the world economy, such as an extension of the Middle East conflict, in which Israel is at war with Hamas fighters in Gaza.
“The sustained strength we’ve seen makes it less likely that we will have a recession now than it was three or six months ago,” Faucher continued.
High interest rates have already caused the economy to stagnate, and this trend will continue in 2024, according to Bankrate’s McBride. In a continued effort to combat inflation, the Federal Reserve has maintained high interest rates, and it is unlikely to do so anytime soon.
Currently, the average interest rate on credit cards is still higher than 20%. Additionally, the average 30-year interest rate is still between 6.5% and 7%, with certain faster-growing areas of the nation seeing even higher rates. This is despite the fact that mortgage rates have just recently begun to fall. Similarly, same range applies to auto loans as well.
“Interest rates will take the stairs going down, but they took the elevator going up,” McBride stated. Although a few Federal Reserve officials have hinted that they would consider lowering interest rates in the upcoming year, McBride stated that the reduction would occur “at a very modest rate.”
He declared, “We’re going to be in an environment with high interest rates for some time.”
Nevertheless, a lot of customers have survived this climate and will probably do so again in the coming year, according to analysts.
Economists at Bank of America stated this week in comments that many Americans now have “net wealth” that has increased as a result of rising home values and an exceptional year for the stock market. They claimed that this will keep the rate of purchases at a healthy level.
The economists stated, “Understanding the consumer continues to be more about ‘watch what I do and not what I say,'” implying that consumers are still at ease with making purchases while voicing concerns about the state of the economy.
The analysts also noted that while the overall number of hours worked has continued to rise, recent retail sales statistics suggest that holiday spending this year “was more favorable than many expected.”
Naturally, not all Americans are able to maintain their financial stability in this idyllic circumstance. The analysts at Bank of America observe that many households are far from well-off when it comes to the distribution of savings and home affordability since the epidemic.
Additionally, according to McBride of Bankrate, 60% of Americans currently live paycheck to paycheck.
However, generally, according to Bank of America economists, “it appears the U.S. consumer is cooling, not retrenching.”