While this year could bring potential changes to the economy, many economists and investment analysts believe the country is likely to avoid recession in 2024, even if growth slows in the first half of this year. I predict that.
State Newsroom spoke to The Economist about its expectations for some key indicators and concerns about what could change the outlook.
Job market remains strong, but not as hot as in 2023
The unemployment rate has remained below 4% for nearly two years, dropping to 3.7% in November. However, employment has cooled since the start of the year, with the latest employment figures showing a decrease of nearly 40,000 jobs in the retail industry, leaving questions about how stable the labor market will be in 2024.
Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute, a New York-based think tank, said that while employment rates have slowed, layoffs haven't been that many and the Federal Reserve bodes well for next year. Stated. We will not “overshoot” the economy in our efforts to slow it down. The Fed has suspended its interest rate hike campaign that began in March 2022.
“Imagine unemployment as a puddle. Instead of more people unemployed, there's just a little less outflow. It's a different kind of dynamic,” he said. “We are typically accustomed to a downturn in the labor market, with employment all but stopping and layoffs increasing.'' Some point out that much of the change in employment is occurring among young people.25 It's not a broad-based economic slowdown for people between the ages of 54 and 54.
Mark Zandi, chief economist at Moody's Analytics, said he expects the labor market to remain stable in 2024 and job growth to be resilient but moderate.
“2024 should be a good year for workers. There will still be plenty of employment and unemployment will be low. Wage growth will slow, but it should continue to grow well enough to outpace inflation,” he said.
Wages rose 4% over the past year, the Bureau of Labor Statistics said in November, but the November report showed overall prices rose 3.1% over the 12 months, down from 3.2% in October. As a result, inflation is easing.
Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley, said the strength of the labor market depends in part on how successful the Fed's interest rate policy is.
“If inflation goes down, unemployment doesn't go up, and we can continue with this severe hurdle, I think the economy will calm down a little bit and wages can continue to rise and catch up with the inflation that we've seen in recent years.” “But it's not dramatically higher than that,” Rothstein said. “…If they are not successful, there is a risk of over-tightening and a recession, but so far there is no sign that this is happening.”
Workers will have the power to continue organizing
Workers in retail, auto manufacturing, media, and shipping have been particularly active in 2023 through labor organizing, with thousands of workers going on strike or threatening to strike in heated contract negotiations. It made the news through labor organizations during what was called the “hot summer of labor.” . Tight labor markets and rising profits in some industries have given workers the power to demand better working conditions, higher wages and more inclusive contracts for low-wage workers, and that will continue next year. It is expected to be.
The unemployment rate would have to rise significantly for workers to lose significant influence in the fight for safer workplaces and higher wages, Konczal said. Organizers will also continue to benefit from the highly pro-union National Labor Relations Board, he said.
“If you think more about the background conditions under which workers can exercise some power, I think the question is not whether the unemployment rate is 3.9% versus 3.6%, but whether the unemployment rate is 3% or 5% or 6% or 7%.” ,” he said. “The overall labor market will still have a strong influence on the revival of the labor movement.”
He has some concerns that the service sector will face headwinds in its efforts to unionize workers as employment in the sector begins to slow.
“Again, I think they still have an opportunity to move further forward if demand remains strong and workers are favored,” he added.
Housing market continues to be a challenge
Federal Reserve policy changes and pent-up demand for housing will make the housing market more competitive in many states, continuing to challenge those seeking affordable housing and rentals. But prices will stabilize in some U.S. housing markets, particularly in the Sunbelt. Prices will rise, but at a slower pace than before due to the unsustainable growth experienced early in the pandemic.
Thelma Hepp, Chief Economist at CoreLogic, said: “When mortgage rates were just below 6%, there was a significant spike in demand. That means there's a significant amount of pent-up demand, but people are sitting.” Mortgage rates on the sidelines I'm waiting for it to go down. ”
He said the biggest competitors in the housing market right now are baby boomers and first-time homebuyers. He said first-time homebuyers accounted for a higher proportion of the recent growth in mortgage applications as mortgage rates have fallen slightly. Buyers withdrawing from the rental market will in turn affect rental prices.
Hepp said that while rents will continue to rise in 2024, prices will start to moderate rather than skyrocketing like they have in past years.
“Historically, rents have increased 3% year-over-year, and I wonder what's going to happen next. The reason is that people who are out of market purchase price attract renters,” or “Some people are still renting because they’re not ready to buy or they don’t have inventory,” she said.
Zandi said he doesn't think the housing market will be affordable next year for many Americans who are pricing it now.
“I think there needs to be some price decline, but that will take time because all the people with 3.5% mortgages will be very reluctant to move. Only in cases of death, children or needing to change jobs, which can take time,” he said. “I'm not saying that I think the worst is just around the corner in terms of home sales and affordability, but I don't think the market will become affordable for most Americans anytime soon, certainly not until 2024. That would be impossible.”
Hepp also expects housing demand to continue to increase somewhat in the Midwest due to federal investment in semiconductor manufacturing.
Personal consumption “drives the economy forward”
Mr. Konczal and Mr. Zandi said they were not concerned that there would be a major shift in consumer spending that would hurt the economy in 2024, saying they were encouraged by what they were seeing so far. Ta. Core prices, which exclude food prices and energy, rose 0.3% in November, up slightly from October's 0.2% rise, bringing the annual rate of increase to 4%. But neither Konczal nor Zandi see this as a reason for alarm.
“Overall, there is still a lot of savings and strong spending,” Konczal said. “Obviously, for many people, for too many people, [savings] And so on, that's something I'm really curious about. However, if we look at the economy as a whole, spending remains very strong and the fiscal situation does not appear to be deteriorating. …I think there's good reason to assume this will continue, especially if the Fed says yes to the fact that it has brought inflation down. ”
Zandi said that despite soaring home prices, the financial health of many Americans has improved.
“People are still much better off than they were before the pandemic, and both high-income and low-income households, as well as those in the top two-thirds of the income distribution, are still building up large amounts of extra savings. “Even during the pandemic, they seem willing to use it if they need to maintain purchasing power,'' he said. “I don't think consumers are going to spend money recklessly, which is a good thing because that feeds into inflation and further rate hikes.” But I think (they) are doing their part and I think it will continue to move the economy forward. ”
What could go wrong?
Economists said the economy could weaken depending on the political outcome next year. With about a year left until the general election, some polls show a close race between President Joe Biden and former President Donald Trump, although the numbers could change significantly between then and now. The political and social upheaval that a close result could bring could also trigger economic turmoil in 2024.
“It feels like it's going to be a very close race, so it's very likely to be contested, but there's no upside to that,” Zandi said. “The question is how much downside there is going to be, how much social unrest and violence there will be. I hope it's nothing…but it's certainly something to look at. risks to my optimistic view of
He said some of these worst-case scenarios could impact the stock and bond markets.
“A closely contested election could spark social unrest, which would be most rapid and pronounced in stock and bond markets. Given how fragile consumer and business confidence is already “This could turn the situation upside down, weakening consumer spending and business investment and causing a recession,” he said.
Rothstein, a professor at Berkeley, said a repeat of candidates' refusal to accept defeat, as President Trump and his supporters did in 2020, could be a major problem for the country. He said economics was not the first concern when assessing the possibilities. Any damage could cause “major problems” in financial markets.
In addition to concerns about the economic impact of the presidential election, economists are also focusing on the risk of a government shutdown. Congress is working toward deadlines in January and February to help craft a spending bill to avoid a government shutdown, which was averted this year by approving a stopgap spending bill.
“I think a government shutdown is always a threat to the economy,” Rothstein said. “Shut down for more than a few days, it would have a huge impact across the economy and could cause a recession. Even if it doesn't cause a recession, it definitely makes our economy more vulnerable and poorer. So I think we should expect the signs that have so far avoided closure to continue.”