As the new year is underway, there’s reason to be bullish (or, at least, not bearish) about what 2024 may have in store. Holiday retail sales increased 3.1% despite lingering inflation, thanks to robust job growth and strong wage gains, which came as a big relief for retailers. Price-conscious consumers are still spending, suggesting the economy is strong. “What we’re seeing this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that’s still very much expanding,” says Michelle Meyer, Mastercard’s chief economist.
Encouraging holiday sales is good news for 2024 forecasts. The unemployment rate is 3.7%. The annual rate of inflation has fallen to 3.1%, less than half what it was a year ago, and experts expect it to drop below 2.5% in 2024. As a result, consumer confidence is up. Pundit forecasts for a 2023 recession didn’t come to pass, as low unemployment and rapidly declining inflation prevailed. And net wealth has grown for many Americans, thanks to higher home prices and a banner year for the stock market, with the S&P up 24%. All of these factors could continue to fuel a healthy rate of spending.
................................ There may be challenges ahead, but there’s reason to be cautiously optimistic: the U.S. economy appears poised for a gentle 2024, with forecasts of declining inflation, interest rate cuts, and only a slight uptick in unemployment.
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Still, the economy is likely to slow, at least in the first half of the year. After a post-pandemic period that saw growth surpass most forecasts, we may now expect a period of reduced business activity for a few reasons: while unemployment is low, it is up from the 3.4% low reached in April; and despite a valiant effort to reduce inflation, it has not been able to get below 3%. While the risk of recession remains, it likely won’t occur unless there’s a negative shock to the global economy (and with wars in Israel and Ukraine, that’s not so farfetched). And, critically important, some 60% of Americans live paycheck to paycheck. The main risk for 2024 could be the Fed. It might keep interest rates too high for too long, pushing the economy under, or it could cut them too early, allowing inflation to take off again and necessitating even harsher hikes later.
Yet, overall, there are many reasons to be optimistic. Engagements are expected to pick up steam after a pandemic-triggered drop-off; about 2.8 million U.S. couples get engaged every year. Americans are working hard and innovating in every corner of the economy. Optimism is on the rise; 70% think 2024 will be a better year than 2023. The Middle East and Russia notwithstanding, geopolitical relationships are not all bad. The world’s leading economies, China and the U.S. may be in conflict on several fronts, but neither superpower wants global instability. And, against the odds, most major economies, with the exception of a few in Europe, successfully steered clear of a recession in the face of a global economic slowdown. The real iron in the fire may be the upcoming presidential election, which traditionally disrupts economies with added uncertainty, and following on the heels of the last election, this one has the power to really upend it all. Still, if any industry can have a glass-half-full attitude, it’s ours. Here’s to an annus mirabilis for all.