Over the past few years, the US economy has consistently defied expectations of a slowdown, and 2024 is no different.
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(Bloomberg) — Over the past few years, the U.S. economy has consistently defied expectations of a slowdown, and 2024 is no different.
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Despite the uncertainty surrounding the presidential election, high interest rates and a cold labor market, economic growth has remained strong this year. The United States is expected to be the best performer among the G7 countries, according to International Monetary Fund forecasts.
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However, the economy was far from perfect. Inflation has proven slow to ease, prompting the Fed to adopt a higher, longer approach to interest rates. The housing and manufacturing sectors continued to struggle under the weight of high borrowing costs, and consumers with credit card debt, mortgages and other loans saw delinquency rates rise.
Here is a closer look at the performance of the US economy this year:
Consumers are stuck…
The answer to why the economy will beat expectations in 2024 is the American consumer. Even as hiring slowed, wage growth continued to outpace inflation and household wealth reached new records, supporting a continued expansion in household spending.
Forecasters at Bloomberg Economics estimate that household expenditures will rise 2.8% in 2024 — faster than in 2023 and nearly double their expectations at the start of the year.
…but cracks appeared…
Although consumers are still resilient, some of the key drivers of this remarkable resilience have lost steam this year. Americans have mostly depleted their savings during the pandemic, and have generally been setting aside a smaller share of their income each month.
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Consumer spending has also been increasingly driven by higher income earners who enjoy the so-called wealth effect resulting from gains in housing prices and the stock market. This is happening as many low-income consumers rely on credit cards and other loans to support their spending, with some showing signs of financial stress such as higher late payment rates.
…including in the labor market
The key support for consumer spending is also starting to trigger warning signs in 2024. Hiring has slowed throughout the year and the unemployment rate has risen, creating a popular recessionary indicator. Moreover, the number of available job opportunities has decreased, and the unemployed are finding it increasingly difficult to find new jobs.
Fed officials began cutting interest rates in September amid concerns that the labor market may be approaching a dangerous turning point, though they became more optimistic in the final months of the year as the unemployment rate stabilized around levels that remain low by historical standards. Meanwhile, wage growth remains steady at around 4%, which should continue to support household finances.
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The progress of inflation has stopped
Progress toward the central bank’s 2% inflation target has stalled in recent months after a rapid decline in 2023 and additional progress in the first half of 2024. One of the Fed’s preferred measures of inflation — the personal consumption expenditures price index excluding food and energy — rose 2.8% in November compared to last year.
While Fed officials chose to cut interest rates by a full percentage point this year in an attempt to relieve some of the pressure on the economy, Chairman Jerome Powell indicated that central bankers need to see more progress on inflation before making additional cuts in 2025.
High interest rates hurt the housing market…
The housing market continued to struggle under the weight of rising borrowing costs. Mortgage interest rates, which fell to a two-year low in September, are approaching 7% again amid expectations that the Fed will take longer to lower them. Contractors continued to offer incentives to attract buyers, including so-called mortgage buyouts and payments on their behalf, as well as occasional price reductions.
Although sales have stabilized somewhat this year, they are still below pre-pandemic levels. In the resale market — which accounts for the majority of home purchases — the National Association of Realtors expects the pace of sales for 2024 to be even lower than last year, which was already the worst since 1995.
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…and the manufacturing sector
The manufacturing sector was another victim of high borrowing costs. Investment in new structures has been hampered by high interest rates and weak demand abroad, and many companies have shed jobs in an attempt to save costs. Durable goods manufacturers have been off the payroll for one month this year.
President-elect Donald Trump’s economic agenda could also impact the sector in 2025. Despite Trump’s promise to boost domestic manufacturing, some economists and business groups expect his plans to impose higher tariffs, deport millions of immigrants and cut taxes could lead to higher inflation and lower taxes. Restricting the labor market, as well as disrupting supply chains. Capital spending by US manufacturers is expected to rise at a tepid pace next year amid this uncertainty.
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