The U.S. economy in 2024 is navigating a landscape marked by cautious optimism and significant adjustments. Following a year where the economy outperformed expectations with a 2.8% real GDP growth, projections for 2024 suggest a deceleration to a more subdued 0.7% pace. This slowdown is attributed to the cumulative effects of monetary policy tightening, the dissipation of post-pandemic tailwinds, and changing fiscal dynamics. Consumer spending, a major component of GDP, is expected to grow at a more moderate rate due to factors such as diminished excess savings and the resumption of student loan payments. Despite these headwinds, the economy is not anticipated to break; rather, it may experience what’s termed a “soft landing,” where growth slows but remains positive without plunging into a recession.
Employment and labor market conditions provide a mixed picture. The labor force participation rate has seen a slight increase, indicating a robust labor market with continued employment opportunities. However, there are signals of normalization, with unemployment potentially inching up, albeit remaining low by historical standards. This reflects a job market that is cooling yet remains fundamentally strong, supported by tight labor conditions and relatively healthy household balance sheets.
Internationally, the U.S. stands on comparatively strong economic ground, especially against its G7 peers. Avoiding the anticipated recession in 2023, the U.S. led in real GDP growth thanks to significant federal spending and robust labor markets. Inflation, a key concern over the past years, has been on a downward trajectory, enhancing the purchasing power of American households. Furthermore, the U.S. is expected to continue its growth trend in 2024, albeit at a moderated pace, supported by improving productivity and declining inflationary pressures. This positions the U.S. in a favorable light compared to other major economies facing slower growth and more persistent inflation challenges.
Macro Market
In our revised economic outlook for 2024 and 2025, we predict an acceleration of growth in 2024 to 2.1% year-over-year, followed by a deceleration to 1.7% in 2025. This adjustment reflects a front-loading of growth into 2024, spurred by improvements in supply-side factors, particularly a rebound in the labor force. Despite this growth, we expect the economy’s expansion to come mainly from non-consumer components, which are projected to moderate more slowly than initially anticipated. Consequently, we anticipate a more robust employment scenario, with private payrolls increasing by an average of 150,000 per month in 2024, a significant uptick from our previous forecast.
The unemployment rate is expected to peak at a lower and later point than previously forecasted, reaching 4.1% in the fourth quarter of 2025. This is attributed to a stable labor force participation rate and consistent population growth assumptions. Our outlook for inflation has also been slightly adjusted, with core PCE inflation expected to decrease to 2.6% and 2.3% year-over-year in 2024 and 2025, respectively. These revisions are based on recent data indicating a persistence in services inflation.
Our monetary policy forecast remains unchanged, with the Federal Reserve anticipated to initiate a gradual reduction of interest rates starting in June. This would result in a decrease of 75 basis points (bps) in 2024 and an additional 100 bps in 2025, aiming for a target range of 3.5-3.75% by the end of 2025. This policy adjustment aligns with the expected disinflation trend, allowing for a cautious and moderated approach to interest rate cuts.
The fundamental driver of our positive revision for 2024’s growth is the significant rebound in the labor force, propelled by higher participation rates and increased net migration. This boost in labor supply allows for sustained labor demand without propelling the economy into overheating. As such, sectors like leisure and hospitality, education, and healthcare are likely to continue experiencing strong hiring trends, supporting overall consumption and economic activity while maintaining inflation at manageable levels.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q4 Y/Y earnings are expected to be 9.8%. Excluding the energy sector, the Y/Y earnings estimate is 13.4%.
- Of the 487 companies in the S&P 500 that have reported earnings to date for 23Q4, 76.2% have reported earnings above analyst estimates. This compares to a long-term average of 66.6% and prior four quarter average of 76.4%.
- During the week of March 4, five S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
Pakistan’s Leadership Vote The National Assembly of Pakistan will vote on March 4 to elect a new prime minister, requiring at least 169 votes to win from a total of 336. The coalition of Pakistan Muslim League and Pakistan People’s Party has nominated former Prime Minister Shehbaz Sharif, while Pakistan Tehreek-e-Insaf has nominated Omar Ayub Khan. The election is expected to be contentious with anticipated protests. The incoming leader will face daunting economic challenges, including meeting external financing needs and negotiating with the IMF. Additionally, a presidential election is set for March 9, with the coalition backing Asif Ali Zardari.
UK’s Financial Plan On March 6, UK Chancellor Jeremy Hunt will present the Spring Budget, setting forth tax and spending priorities crucial for the Conservative Party’s election strategy. Despite pressure for tax reductions, fiscal constraints may limit major cuts. Potential measures include slight tax reductions and adjustments to fund them, such as ending certain tax exemptions and introducing new levies. The budget’s focus will be managing the high fiscal deficit and national debt while addressing public and party expectations.
China’s Policy Assembly From March 4-11, China’s Two Sessions, comprising the National People’s Congress and the Chinese People’s Political Consultative Conference, will convene. Premier Li Qiang will report on policy objectives, with focus areas including GDP growth, budget allocations, military spending, and economic revitalization strategies. This event will also hint at China’s 2024 strategic priorities and potential leadership changes following recent purges.
ASEAN-Australia Relations Australia will host the ASEAN-Australia Special Summit from March 4-6, celebrating 50 years of partnership. Discussions will center on economic collaboration, particularly in green technology, while avoiding divisive geopolitical topics. The summit is also an opportunity for Australia to conduct bilateral discussions, following recent security agreements with the Philippines and planned talks with Malaysian and Vietnamese leaders.
Stratfor.com
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