Economists are reshaping their projections for the year ahead, offering a nuanced perspective that blends optimism and caution. While the likelihood of a recession has diminished, a subdued growth forecast, coupled with rising unemployment, suggests that for many, the economic landscape in 2024 may still evoke recessionary sentiments.
According to The Wall Street Journal's recent survey of economists, the probability of a recession within the next year has dropped from 48% (as projected in October) to 39%. Several factors contribute to this positive shift, including lower interest rates, a decline in gas prices from the previous year, and income growth outpacing inflation. However, despite these positive indicators, economists are quick to highlight that the upcoming economic scenario may be more accurately characterized as a "growth stop" than a recession.
The U.S. currently experiences robust stock prices, a strong job market, and a decline in inflation. Still, consumer confidence remains historically low, underscoring the complexity of interpreting economic well-being beyond traditional metrics. Bill Adams, chief economist at Comerica Bank, notes the diminished probability of a recession, citing favorable trends in interest rates and gas prices.
Despite the positive aspects, economists anticipate a modest economic growth of 1% in 2024, half of the long-run average, and a notable deceleration from the estimated 2.6% growth in 2023. Rajeev Dhawan, an economist at Georgia State University, characterizes this as more of a growth slowdown than a recession.
Job market dynamics are expected to shift, with economists projecting a slower pace of job additions in 2024. Payroll gains are anticipated to average 64,000 per month, a significant decline from the 225,000 average in 2023 and well below the 399,000 in 2022. As job growth lags behind the expansion of the labor force, economists forecast an increase in the unemployment rate from 3.7% in December 2023 to 4.1% in June and 4.3% by the end of the year.
An interesting facet contributing to the recessionary sentiment is the wide dispersion in performance across industries. Cyclical sectors, sensitive to economic fluctuations, are expected to face challenges in 2024, even without an overall economic contraction. Kathy Bostjancic, chief economist for Nationwide Mutual, highlights that cyclical sectors are likely to tighten employment and experience difficulties in maintaining pricing power.
Economists identify healthcare as the sector with the strongest job growth in 2024, followed by leisure and hospitality. However, a quarter of economists expect manufacturing to witness the weakest job growth, with 17% citing retail and 12% mentioning transportation and warehousing—all of which fall into cyclical sectors.
While the economic scenario presents challenges, there is a silver lining with inflation expected to return to around 2%, the Federal Reserve's target, in 2024. Economists foresee a drop in the personal-consumption expenditures price index, excluding food and energy, from 3.2% in November 2023 to 2.3% at the end of 2024.
The prospect of a Federal Reserve rate cut looms, with expectations divided among economists regarding the timing. While markets predict the first cut in March, economists are split between April and June. Furthermore, economists project fewer rate cuts than the market, foreseeing only one or two quarter-percentage point cuts by the end of June.
As economic crosscurrents continue to shape the outlook for 2024, the nuanced perspective provided by economists underscores the intricate challenges and opportunities that lie ahead.
