Economic lookahead: As we ring in 2024, can the US economy continue to avoid a recession?

<p><strong><a href="https://theconversation.com/profiles/d-brian-blank-1311827">By D. Brian Blank</a>, <em><a href="https://theconversation.com/institutions/mississippi-state-university-1970">Mississippi State University</a></em> and <a href="https://theconversation.com/profiles/brandy-hadley-1393872">Brandy Hadley</a>, <em><a href="https://theconversation.com/institutions/appalachian-state-university-1629">Appalachian State University</a> </em></strong></p>
<p><em>With <a href="https://www.bloomberg.com/news/newsletters/2023-12-14/five-things-you-need-to-know-to-start-your-day">economic forecasters rewriting their 2024 outlooks</a> <a href="https://www.bloomberg.com/news/articles/2023-12-13/stock-market-today-dow-s-p-live-updates">following recent moves</a> <a href="https://www.schwab.com/learn/story/fomc-meeting">from the Federal Reserve</a>, The Conversation turned to two financial economists to share their thoughts on the upcoming year.<br />
</em></p>
<p><em><a href="https://scholar.google.com/citations?user=VxWst50AAAAJ">D. Brian Blank</a> and <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ">Brandy Hadley</a> are professors who study <a href="https://www.sciencedirect.com/science/article/pii/S0929119921002406">finance, firm financial decisions and the economy</a>. They explain what they’re watching in 2024.<br />
</em></p>
<h2>1. At this time last year, many experts saw a downturn on the horizon. Will that <a href="https://www.forbes.com/sites/billconerly/2023/02/13/consumer-forecast-2023-2024-growth-now-recession-later/?sh=6a31c804789a">long-predicted recession</a> finally come to pass in 2024?</h2>
<p>The good news is, probably not.</p>
<p>The U.S. economy is <a href="https://www.c-span.org/video/?c5097962/fed-chair-economy-recession-remains-possibility">not in a recession</a> and will likely <a href="https://www.bloomberg.com/news/articles/2023-12-13/stock-market-today-dow-s-p-live-updates">continue growing</a>. Over the past year, <a href="https://www.whitehouse.gov/cea/written-materials/2023/12/19/ten-charts-that-explain-the-u-s-economy-in-2023/">gross domestic product has outpaced expectations</a>, <a href="https://www.usnews.com/news/economy/articles/2023-12-12/inflation-continues-to-decline-hitting-3-1-rate-in-november">inflation is trending downward</a> and <a href="https://www.cbsnews.com/news/jobs-report-today-november-199000-new-jobs-unemployment-rate/">employment remains robust</a>. <a href="https://finance.yahoo.com/news/strong-wage-growth-gave-americans-a-1000-spending-boost-in-2023-194703857.html">Real wages have increased</a>, as has <a href="https://www.bbc.com/worklife/article/20231130-why-americans-yolo-spending-attitude-baffles-economists">consumer spending</a>. Additionally, <a href="https://www.reuters.com/markets/us/us-single-family-housing-starts-surge-november-2023-12-19/">housing demand is strong</a> and financial markets are at <a href="https://www.washingtonpost.com/business/2023/12/13/dow-jones-stock-market-record-high-economy-interest-rates/">all-time highs</a>. While no one should argue that there will never be another recession, <a href="https://www.wsj.com/economy/central-banking/the-fed-underwrites-the-recovery-0573826c">2024 seems to be an unlikely time for one</a> – unless there’s some unexpected <a href="https://www.gspublishing.com/content/research/en/reports/2023/08/07/d2ab6cef-d9ea-453f-b4fa-912d22ab09ee.html">spark like, for example</a>, a new global pandemic.</p>
<p>To be fair, optimism leads to risk-taking, <a href="https://calvinrosser.com/notes/same-as-ever-morgan-housel/">which can always contribute to the next downturn</a>. And the U.S. economy faces plenty of challenges, including <a href="https://www.businessinsider.com/wall-street-private-equity-woes-debt-stock-market-interest-rates-2023-12">already elevated debt costs</a>, <a href="https://thehill.com/homenews/house/4360885-jeffries-shut-down-house-gop/">a possible government shutdown</a>, rising <a href="https://fredblog.stlouisfed.org/2023/12/three-measures-of-us-credit-card-debt/">consumer debt</a> and <a href="https://www.nber.org/papers/w31970">continued distress in commercial real estate</a>, which could result in <a href="https://www.schwab.com/learn/story/market-outlook-whats-store-2024">rolling industry downturns</a>. Other headwinds include <a href="https://www.forbes.com/sites/seanhanlon-1/2023/12/14/sovereign-debt–us-vs-the-world/amp/">the national debt</a>, <a href="https://twitter.com/gregdefelice/status/1736703178215739834?s=43&amp;t=Y9I4Q3SXKCCzm9-bw6NAxg">other nations’</a> <a href="https://www.eastasiaforum.org/2023/10/09/is-the-chinese-economy-headed-for-japan-style-lost-decades">weaker economies</a> and <a href="https://www.spglobal.com/en/enterprise/geopolitical-risk">ongoing global conflict</a> and <a href="https://www.economist.com/international/2023/12/16/a-new-suez-crisis-threatens-the-world-economy">trade tensions</a>.</p>
<p>While 2023 has seemed to many people like a “<a href="https://twitter.com/steverattner/status/1735276205291524494%22%22">soft landing</a>” – that elusive achievement in which policymakers reduce inflation <a href="https://www.cnn.com/2023/05/11/economy/yellen-us-debt-ceiling-default-warning-intl-hnk/index.html">without sparking a downturn</a> – <a href="https://www.sciencedirect.com/science/article/pii/S0929119921002406">prior recessions</a> have followed periods <a href="https://www.nytimes.com/2007/02/15/business/worldbusiness/15iht-fed.4605930.html">where people thought they had been avoided</a>. That may be why bankers, <a href="https://www.bloomberg.com/news/articles/2023-12-20/us-finance-chiefs-expect-to-pay-slightly-more-to-raise-debt">finance leaders</a> and economists are <a href="https://x.com/MenthorQpro/status/1736813312350802165?s=20">still noting</a> <a href="https://twitter.com/arindube/status/1735852216144056353">the risks of interest rates remaining high</a>.</p>
<p>Still, <a href="https://www.whitehouse.gov/cea/written-materials/2023/12/19/ten-charts-that-explain-the-u-s-economy-in-2023/">the fundamentals</a> <a href="https://www.richmondfed.org/research/national_economy/cfo_survey/data_and_results/2023/20231220_data_and_results">are strong</a> and <a href="https://www.bloomberg.com/news/articles/2023-12-21/south-korea-s-early-exports-show-recovery-momentum-picks-up">may be on the rise</a>, <a href="https://twitter.com/DanielBZhao/status/1737492376396939422">if you believe chief financial officers</a>. Plus, despite dysfunction in Washington, recent laws and policies like the <a href="https://www.congress.gov/bill/117th-congress/house-bill/4346">CHIPS and Science Act</a>, the <a href="https://www.congress.gov/bill/117th-congress/house-bill/3684">bipartisan infrastructure deal</a>, the <a href="https://www.whitehouse.gov/ostp/ai-bill-of-rights/">AI Bill of Rights</a> and the <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/30/fact-sheet-president-biden-issues-executive-order-on-safe-secure-and-trustworthy-artificial-intelligence/">Executive Order on Safe, Secure, and Trustworthy Use of Artificial Intelligence</a> could further <a href="https://www.atlantafed.org/cqer/research/gdpnow">boost economic growth</a> by <a href="https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier">stimulating job</a> creation and enhancing competitiveness. Notably, public and private manufacturing and industrial investment are at <a href="https://www.whitehouse.gov/briefing-room/blog/2023/08/16/the-economics-of-public-investment-crowding-in-private-investment/">unprecedented levels</a>, and technology is <a href="https://www.stateof.ai/">quickly advancing</a>, further contributing to the <a href="https://www.marketplace.org/2023/12/20/the-housing-sector-is-coming-out-of-the-doldrums-but-will-it-keep-improving-through-2024/">positive economic outlook</a>, not to mention <a href="https://fred.stlouisfed.org/series/BOGZ1FL193020005Q">strong consumer balance sheets</a>.</p>
<h2>2. Then what about a <a href="https://www.nytimes.com/2023/12/14/upshot/economy-vibes-election-biden.html">‘vibecession</a>’? Are we in one now, and why does it matter for 2024?</h2>
<p>When you look at the economic pessimism <a href="https://www.conference-board.org/topics/consumer-confidence">revealed in polls</a> and on <a href="https://www.nytimes.com/2023/11/17/business/economy/tiktok-biden-economy.html">social media</a>, a fascinating paradox emerges – despite the collective bad vibes, the majority of <a href="https://www.nytimes.com/2023/09/07/opinion/economy-inflation-negativity.html">Americans say their personal economic situations are basically fine</a>.</p>
<p>The <a href="https://www.bloomberg.com/opinion/articles/2023-09-28/risks-are-growing-of-a-double-dip-vibecession">writer Kyla Scanlon has called this state of affairs a “vibecession”</a>: While the economy continues to grow, <a href="https://kyla.substack.com/p/the-vibecession-the-self-fulfilling">the vibes are just off</a>. The fact that consumer spending <a href="https://fred.stlouisfed.org/graph/fredgraph.png?g=18uVP">continues to see sustained growth</a>, despite the <a href="https://ca.finance.yahoo.com/news/us-publics-downbeat-view-economy-191111619.html">gloomy economic outlook</a>, underscores a curious split between sentiment and economic activity.</p>
<h2>3. What if individual income and spending keep rising? Wouldn’t that be enough to end the vibecession?</h2>
<p>In short: Not necessarily.</p>
<p>While <a href="https://www.usbank.com/investing/financial-perspectives/investing-insights/how-does-inflation-affect-investments.html">inflation has been high over the past couple of years – reaching a peak of 9.1% in June 2022 before falling to 3.1% recently</a> – <a href="https://twitter.com/arindube/status/1684244062860374016/photo/1">most Americans have not seen their income rise as fast as inflation since 2021</a>. As a result, <a href="https://www.conference-board.org/topics/consumer-confidence">many are frustrated</a> that <a href="https://www.bloomberg.com/news/articles/2023-12-20/us-child-care-costs-rise-in-post-covid-economy-pushing-parents-into-second-job">they can’t afford what they could in 2020</a>. Is reminiscing like prior generations <a href="https://www.wbur.org/npr/165143816/why-coke-cost-a-nickel-for-70-years">about how Coca-Cola used to cost a nickel</a> killing the vibes? If inflation rises faster than wages in 2024, the vibes may suffer.</p>
<p>What’s more, <a href="https://twitter.com/talmonsmith/status/1737192062808707501">other positive economic developments</a> have seemed to barely affect the vibes. Just about <a href="https://fred.stlouisfed.org/series/PAYEMS">everyone who wants a job has one</a>, which is a crucial factor in maintaining consumer confidence and spending habits.</p>
<p>To be sure, gas prices also play an <a href="https://www.theatlantic.com/ideas/archive/2023/12/why-gas-prices-falling-inflation/676381/">outsized role in shaping sentiment</a>, and as they unexpectedly fell in December, <a href="http://www.sca.isr.umich.edu/">sentiment improved</a>. This highlights the impact of <a href="https://trends.google.com/trends/explore?geo=US&amp;q=high%20gas%20prices,are%20we%20in%20a%20recession">energy costs</a> on the public’s mood and suggests that <a href="https://www.wsj.com/business/energy-oil/bp-to-pause-all-shipments-through-red-sea-following-attacks-cd603dad?mod=hp_lead_pos7">fluctuations in gas prices</a> can quickly influence overall economic sentiment.</p>
<p>However, we suspect that <a href="https://kahlerfinancial.com/financial-awakenings/money-psychology/the-economy-is-bad-but-not-for-me">consumers will keep doing what they’re doing</a> – spending money <a href="https://civiqs.com/results/economy_us_now">and feeling bad about the economy</a> – until some shock forces them out of it. This <a href="https://thehustle.co/the-american-economy-is-fine-but-americans-aren-t/">weird contradiction</a> between perceived gloom and personal financial well-being <a href="https://www.theatlantic.com/newsletters/archive/2022/06/american-economy-negative-perception-inflation/661149/">highlights the complex interplay of psychological factors</a> and material realities that shapes the overall economic narrative.</p>
<h2>4. Could the vibecession become a self-fulfilling prophecy?</h2>
<p>Consumers say they feel bad, but they’re <a href="https://fortune.com/2023/12/14/retail-sales-november-2023-consumer-spending-holiday-season/">continuing to spend more than expected</a>, which <a href="https://www.reuters.com/markets/us/us-consumer-spending-beats-expectations-september-2023-10-27/">has been the case</a> <a href="https://www.cnbc.com/2022/08/23/consumer-cash-is-about-to-grow-again-and-could-help-avoid-a-recession.html">for more than</a> <a href="https://www.usnews.com/news/economy/articles/2023-12-14/retail-sales-come-in-above-estimates-for-november-led-by-online-bars-and-restaurants">a year now</a>. These facts seem at odds with each other, and some experts <a href="https://kyla.substack.com/p/the-vibecession-the-self-fulfilling">worry the pessimism itself</a> could <a href="https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-03">hurt the economy</a>. This is because <a href="https://doi.org/10.1086/680670">people spend less</a> when they’re <a href="https://www.nytimes.com/2023/12/12/business/gas-prices-inflation.html">concerned about</a> the future.</p>
<p>However, this has been the case for months – so it’s unclear why it should change now.</p>
<p><a href="https://www.mercatus.org/research/policy-briefs/gas-prices-inflation-expectations-and-consumer-sentiment">While understanding</a> <a href="https://www.convenience.org/Media/Daily/2022/Oct/27/1-Gas-Prices-Impact-Consumer-Sentiment_Consumers">that consumer sentiment</a> <a href="https://news.gallup.com/opinion/gallup/317282/gas-prices-consumer-sentiment.aspx">is complex</a>, we think it makes more sense to focus on what people do, not what they say. And people are behaving in a way that’s <a href="https://twitter.com/LizAnnSonders/status/1736723191492378699/photo/1">consistent with a strong economy due to rising real income</a>, not to mention a <a href="https://www.bls.gov/news.release/empsit.nr0.htm">robust labor market</a>.</p>
<p>And overall, if you <a href="https://www.worldbank.org/en/research/brief/global-recession">tell people for the better part</a> of <a href="https://money.usnews.com/investing/articles/recession-2023-what-to-watch-and-how-to-prepare">two years</a> that <a href="https://www.bloomberg.com/news/articles/2023-10-01/6-reasons-why-a-us-recession-is-likely-and-coming-soon">a recession</a> <a href="https://time.com/6240221/a-recession-is-widely-expected-heres-how-to-prepare/">is imminent</a>, you shouldn’t be shocked that <a href="https://ca.finance.yahoo.com/news/us-publics-downbeat-view-economy-191111619.html">they’re gloomy</a>. If <a href="https://www.wsj.com/finance/stocks/beware-the-most-crowded-trade-on-wall-street-next-years-soft-landing-de101f35">the consensus</a> <a href="https://www.forbes.com/advisor/investing/is-a-recession-coming/">is wrong</a>, it should surprise no one when <a href="https://podcasts.apple.com/us/podcast/the-indicator-from-planet-money/id1320118593?i=1000638734181">sentiment diverges</a> <a href="https://youtu.be/9kKFUIjQP7c?feature=shared">from economic data – especially with</a> <a href="https://www.cnn.com/2021/08/06/politics/inflation-gop-fact-check/index.html">politicians blaming</a> <a href="https://thefulcrum.us/big-picture/Leveraging-big-ideas/us-economy">each other</a> for a <a href="https://www.politico.com/news/2022/05/27/inflation-blame-game-sorting-out-the-culprits-00035712">weaker economy</a>.</p>
<h2>5. What else are you watching for in 2024?</h2>
<p><a href="https://www.wsj.com/livecoverage/fed-meeting-fomc-interest-rate-december-2023">Coming off</a> <a href="https://www.bloomberg.com/news/articles/2023-12-14/goldman-revises-fed-call-now-seeing-earlier-and-faster-cuts">the December Federal Reserve meeting</a>, <a href="https://t.co/cuCxHEvEQi">many forecasters</a> <a href="https://twitter.com/IrvingSwisher/status/1735274325186388422">have rewritten</a> <a href="https://twitter.com/KathyJones/status/1735034266331869690">their 2024</a> <a href="https://www.bloomberg.com/news/newsletters/2023-12-14/investing-in-2024-experts-tips-on-stocks-bonds-crypto">outlooks with the</a> <a href="https://twitter.com/LizYoungStrat/status/1735310241074495581/photo/1">expectation that</a> <a href="https://twitter.com/NickTimiraos/status/1735237738104803678/photo/1">the Fed will</a> <a href="https://twitter.com/biancoresearch/status/1735166912680923536/photo/1">lower rates</a> more than they anticipated before Chair Jerome Powell gave an optimistic press conference. Though <a href="https://www.regions.com/-/media/pdfs/wealth-management/Wealth-Management-Market-Com.pdf">many expected Powell to minimize discussions about lowering rates</a>, meeting responses were strong, deeming inflation defeated and consensus <a href="https://twitter.com/HayekAndKeynes/status/1737566331069751441/photo/1">expectations forecasting a benchmark federal funds rate below 4% by year end</a> <a href="https://twitter.com/timduy/status/1735305012493070721?s=43&amp;t=Y9I4Q3SXKCCzm9-bw6NAxg">to relax</a> <a href="https://twitter.com/biancoresearch/status/1735185585944580383/photo/1">financial conditions</a>.</p>
<p>While investors <a href="https://twitter.com/lisaabramowicz1/status/1735015015629914570/photo/1">appear to have overreacted</a> – again – <a href="https://www.foxbusiness.com/video/6343226144112">additional slowing in inflation</a> and economic growth is likely as the economy continues to normalize post-pandemic. The most likely outcome for 2024 is that the Federal Open Market Committee <a href="https://twitter.com/renmacllc/status/1736351635461280060?s=43&amp;t=Y9I4Q3SXKCCzm9-bw6NAxg">lowers rates following more downward revisions to inflation data</a> <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">beginning as early as March</a> until rates end the year just below the <a href="https://twitter.com/LizAnnSonders/status/1735022936518504595/photo/1">Fed’s 4.5% federal funds rate projection</a>. However, <a href="https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20231213.pdf">the Fed isn’t waiting</a> for inflation to reach its 2% target before lowering rates, which means that rapidly falling inflation could make more rate cuts possible.</p>
<p><a href="https://podcasts.apple.com/us/podcast/renmac-off-script-escape-velocity/id1468523309?i=1000638710187">Economic growth is likely to remain strong in 2024, and inflation will likely slow</a>, albeit at a more muted rate. And with <a href="https://www.bloomberg.com/news/articles/2023-12-14/mortgage-rates-in-us-slide-below-7-for-first-time-since-august">mortgage rates falling below 7% now</a>, housing starts and mortgage originations <a href="https://twitter.com/LizYoungStrat/status/1737180032169124012?s=19">are rising</a>. Now, <a href="https://www.resiclubanalytics.com/p/housing-economist-expects-lockin-effect-ease-2024">housing affordability</a> may <a href="https://twitter.com/mortgagetruth/status/1737128846670086304?s=19">improve in the coming year</a>, albeit from the worst level in decades.</p>
<p>While <a href="https://abcnews.go.com/538/video/progressives-won-economic-debate-fivethirtyeight-politics-podcast-105675241">2024 is likely</a> to involve <a href="https://theconversation.com/us-elections-2024-a-biden-vs-trump-rematch-is-very-likely-with-trump-leading-biden-219093">debates in other areas</a>, hopefully <a href="https://www.bloomberg.com/news/articles/2023-12-14/bond-bulls-split-gundlach-flags-3-gross-says-farcical">fewer of these</a> economic conversations will happen in <a href="https://twitter.com/biancoresearch/status/1738182503154794652?s=43&amp;t=Y9I4Q3SXKCCzm9-bw6NAxg">2024 than in 2023</a>. And if we are lucky, <a href="https://twitter.com/renmacllc/status/1736016058220204492?s=43&amp;t=Y9I4Q3SXKCCzm9-bw6NAxg">markets will rise at least as quickly</a>, though we should remember that almost everyone was wrong last year – and if there’s one prediction we can make with confidence, it’s that <a href="https://www.ft.com/content/c2d4d4b5-cbc8-4b5c-9ea3-44e9742d5b3a">at least some of</a> <a href="https://biancoresearch.com/bianco/samples/2023/12/Presentation122123.pdf">today’s forecasts</a> will <a href="https://www.cnbc.com/2023/10/25/economic-forecasts-have-been-very-wrong-lately-but-thats-really-nothing-new.html">look pretty silly</a> <a href="https://www.calculatedriskblog.com/2023/12/review-ten-economic-questions-for-2023.html">in retrospect</a>.<!– Below is The Conversation's page counter tag. Please DO NOT REMOVE. –><img decoding="async" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/220007/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!– End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines –></p>
<p><strong><em>About the Authors:</em></strong></p>
<p><a href="https://theconversation.com/profiles/d-brian-blank-1311827">D. Brian Blank</a>, Associate Professor of Finance, <em><a href="https://theconversation.com/institutions/mississippi-state-university-1970">Mississippi State University</a></em> and <a href="https://theconversation.com/profiles/brandy-hadley-1393872">Brandy Hadley</a>, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, <em><a href="https://theconversation.com/institutions/appalachian-state-university-1629">Appalachian State University</a></em></p>
<p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/economic-lookahead-as-we-ring-in-2024-can-the-us-economy-continue-to-avoid-a-recession-220007">original article</a>.</p>
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