Our 2024 outlook: An economic landscape of slower growth and less volatility — where the lingering economic effects of the pandemic may finally fade.
Over the last four years, economic and market activity have been exceptionally volatile due to the worst pandemic in more than a century. Since 2020, the economy has contended with a confluence of pandemic-related issues, including a surge in inflation that led to the Federal Reserve and other global central banks hiking interest rates aggressively to bring prices back under control.
Fortunately, significant progress has been made over the last year in taming inflation and other pandemic-era disruptions, setting the stage for an overall optimistic outlook for 2024.
Here’s our economic forecast for 2024:
Slower economic growth
Economic activity will likely downshift from its relatively strong pace of the last year, but that’s OK. A slower pace should help ease inflation and further mitigate remaining pandemic disruptions.
Overall, we expect U.S. real Gross Domestic Product (GDP) to grow by 1.5% in 2024 versus our projected +2.3% rate for 2023. A slower pace leaves less room for error against the possibility of growth slipping into negative territory, but a recession is unlikely.
Diminishing recession odds
We believe the odds of a recession over the next year are about 35% as compared to the 15% odds prevalent at any given time. If a recession were to occur, we believe it would be relatively shallow and short-lived. Historically, the deepest recessions have come when consumers were deepest in debt. Today’s sound consumer balance sheets should provide solid support for economic activity.
Still-strong consumer financial health
Consumer financial health is always the most important consideration regarding the U.S. economy’s potential intermediate-term path. Consumer debt burdens (i.e., required debt payments relative to income) are currently near multi-decade lows. Home values are also high, savings remain above historical average levels and job prospects remain favorable, in our view.
Easing inflation and interest rates
As we move into 2024, we believe inflation should continue to ease, thus eventually allowing Fed officials to begin lowering interest rates. We are currently forecasting inflation to reach the Fed’s desired inflation range of “about 2%” by mid-year and that Fed officials can begin to cut interest rates around the same time. The pace of cuts, however, is likely to be much slower than were the hikes on the way up.
As we start 2024, upward price pressures have already faded for most goods and services. In November, Consumer Prince Index (CPI) inflation was just 1.4% if shelter costs were removed. Shelter costs, which are primarily measured in terms of housing rental rates, carry the heaviest weighting within the CPI of 34%. And while shelter costs have been in decline, they typically move more slowly for technical reasons.
Softening job market
We look for the pace of job growth to slow in 2024 as the economy moves into a more mature phase. We forecast the unemployment rate to see a modest increase yet remain well under 5% versus a November 2023 unemployment rate of 3.7%.
Bottom line: What’s next for 2024?
Overall, we believe the economic landscape in 2024 will reflect the final stages of healing from the disruptions of the pandemic. Just as the sharp upswing in interest rates of the last few years was a strong headwind for economic activity and financial markets, we believe falling rates should offer solid support to business activity and financial market performance in the quarters ahead.
Start planning your 2024
As you formulate your own personal financial outlook for the coming year, consider reaching out to your Ameriprise financial advisor. They can help review your progress to your financial goals, plan for the unexpected and review your investment portfolio.