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2024 economic outlook: Slower growth, but less volatility

Russell Price, Chief Economist – Ameriprise Financial
Jan. 15, 2024

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.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources.  This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
The Consumer Price Index (CPI) is an inflation indicator that measures the change in the total cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Commerce Department and is also commonly referred to as the cost-of-living index. Unless otherwise noted, CPI data in this report is one month trailing.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SIPC.

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