By D. Brian Blank and Brandy Hadley
With economic forecasters rewriting their 2024 outlooks following recent moves from the Federal Reserve, The Conversation turned to two financial economists to share their thoughts on the upcoming year.
D. Brian Blank and Brandy Hadley are professors who study finance, firm financial decisions and the economy. They explain what they’re watching in 2024.
1. At this time last year, many experts saw a downturn on the horizon. Will that long-predicted recession finally come to pass in 2024?
The good news is, probably not.
The U.S. economy is not in a recession and will likely continue growing. Over the past year, gross domestic product has outpaced expectations, inflation is trending downward and employment remains robust. Real wages have increased, as has consumer spending. Additionally, housing demand is strong and financial markets are at all-time highs. While no one should argue that there will never be another recession, 2024 seems to be an unlikely time for one – unless there’s some unexpected spark like, for example, a new global pandemic.
To be fair, optimism leads to risk-taking, which can always contribute to the next downturn. And the U.S. economy faces plenty of challenges, including already elevated debt costs, a possible government shutdown, rising consumer debt and continued distress in commercial real estate, which could result in rolling industry downturns. Other headwinds include the national debt, other nations’ weaker economies and ongoing global conflict and trade tensions.
While 2023 has seemed to many people like a “soft landing” – that elusive achievement in which policymakers reduce inflation without sparking a downturn – prior recessions have followed periods where people thought they had been avoided. That may be why bankers, finance leaders and economists are still noting the risks of interest rates remaining high.
Still, the fundamentals are strong and may be on the rise, if you believe chief financial officers. Plus, despite dysfunction in Washington, recent laws and policies like the CHIPS and Science Act, the bipartisan infrastructure deal, the AI Bill of Rights and the Executive Order on Safe, Secure, and Trustworthy Use of Artificial Intelligence could further boost economic growth by stimulating job creation and enhancing competitiveness. Notably, public and private manufacturing and industrial investment are at unprecedented levels, and technology is quickly advancing, further contributing to the positive economic outlook, not to mention strong consumer balance sheets.
2. Then what about a ‘vibecession’? Are we in one now, and why does it matter for 2024?
When you look at the economic pessimism revealed in polls and on social media, a fascinating paradox emerges – despite the collective bad vibes, the majority of Americans say their personal economic situations are basically fine.
The writer Kyla Scanlon has called this state of affairs a “vibecession”: While the economy continues to grow, the vibes are just off. The fact that consumer spending continues to see sustained growth, despite the gloomy economic outlook, underscores a curious split between sentiment and economic activity.
3. What if individual income and spending keep rising? Wouldn’t that be enough to end the vibecession?
In short: Not necessarily.
While 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 – most Americans have not seen their income rise as fast as inflation since 2021. As a result, many are frustrated that they can’t afford what they could in 2020. Is reminiscing like prior generations about how Coca-Cola used to cost a nickel killing the vibes? If inflation rises faster than wages in 2024, the vibes may suffer.
What’s more, other positive economic developments have seemed to barely affect the vibes. Just about everyone who wants a job has one, which is a crucial factor in maintaining consumer confidence and spending habits.
To be sure, gas prices also play an outsized role in shaping sentiment, and as they unexpectedly fell in December, sentiment improved. This highlights the impact of energy costs on the public’s mood and suggests that fluctuations in gas prices can quickly influence overall economic sentiment.
However, we suspect that consumers will keep doing what they’re doing – spending money and feeling bad about the economy – until some shock forces them out of it. This weird contradiction between perceived gloom and personal financial well-being highlights the complex interplay of psychological factors and material realities that shapes the overall economic narrative.
4. Could the vibecession become a self-fulfilling prophecy?
Consumers say they feel bad, but they’re continuing to spend more than expected, which has been the case for more than a year now. These facts seem at odds with each other, and some experts worry the pessimism itself could hurt the economy. This is because people spend less when they’re concerned about the future.
However, this has been the case for months – so it’s unclear why it should change now.
While understanding that consumer sentiment is complex, 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 consistent with a strong economy due to rising real income, not to mention a robust labor market.
And overall, if you tell people for the better part of two years that a recession is imminent, you shouldn’t be shocked that they’re gloomy. If the consensus is wrong, it should surprise no one when sentiment diverges from economic data – especially with politicians blaming each other for a weaker economy.
5. What else are you watching for in 2024?
Coming off the December Federal Reserve meeting, many forecasters have rewritten their 2024 outlooks with the expectation that the Fed will lower rates more than they anticipated before Chair Jerome Powell gave an optimistic press conference. Though many expected Powell to minimize discussions about lowering rates, meeting responses were strong, deeming inflation defeated and consensus expectations forecasting a benchmark federal funds rate below 4% by year end to relax financial conditions.
While investors appear to have overreacted – again – additional slowing in inflation 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 lowers rates following more downward revisions to inflation data beginning as early as March until rates end the year just below the Fed’s 4.5% federal funds rate projection. However, the Fed isn’t waiting for inflation to reach its 2% target before lowering rates, which means that rapidly falling inflation could make more rate cuts possible.
Economic growth is likely to remain strong in 2024, and inflation will likely slow, albeit at a more muted rate. And with mortgage rates falling below 7% now, housing starts and mortgage originations are rising. Now, housing affordability may improve in the coming year, albeit from the worst level in decades.
While 2024 is likely to involve debates in other areas, hopefully fewer of these economic conversations will happen in 2024 than in 2023. And if we are lucky, markets will rise at least as quickly, 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 at least some of today’s forecasts will look pretty silly in retrospect.
D. Brian Blank is Associate Professor of Finance at Mississippi State University. Brandy Hadley is Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments at Appalachian State University.
The Conversation arose out of deep-seated concerns for the fading quality of our public discourse and recognition of the vital role that academic experts could play in the public arena. Information has always been essential to democracy. It’s a societal good, like clean water. But many now find it difficult to put their trust in the media and experts who have spent years researching a topic. Instead, they listen to those who have the loudest voices. Those uninformed views are amplified by social media networks that reward those who spark outrage instead of insight or thoughtful discussion. The Conversation seeks to be part of the solution to this problem, to raise up the voices of true experts and to make their knowledge available to everyone. The Conversation publishes nightly at 9 p.m. on FlaglerLive.
JimboXYZ says
Been in a recession since Biden was sworn in. Inflation for 3 years, been overcharging from the start. We’ve been paying for Biden prosperity as the dollar domestically is worth less than it has ever been. Look at the Belle Terre, paved under Trump, potholes up & down it and it’s not getting less expensive to repave that. Anyone thinking Flagler county is better off for Bidenomics is living in a fantasy world.
Laurel says
Jimbo: How did I know you commented before I even got here? You ignored the whole article and it’s links to its sources. You have lost credibility. Nice try, but…
Ray W. says
No, JimboXYZ, the United States has not been in what qualifies as a recession at any time during the current administration. When the pandemic hit early in 2020, the U.S. economy went into recession for roughly six months, but it emerged from recession prior to the end of the previous administration. There is an economic definition for recession, just as there is an economic definition for depression. You making up your own private definition of recession does not mean that you know the meaning of the actual definition of recession. When you make up your own special definition, you risk the probability of suffering from GIGO Syndrome.
I know that the primary elections are approaching, and that you are going to make yourself more and more excited about the prospect each day. We just have to get through this election cycle. We can get through this together, whether we enjoy it or not, and then you can work on trying to return to the normal JimboXYZ.
John Stove says
Turn off Fox News, Newsmax, Breitbart and step outside for a moment:
Since President Biden took office yes there was a spike in everything but as true leader he worked with his staff to pass laws and executive orders and look at what he achieved:
GDP up 20,500 to 22,500
Unemployment down from 6.5% to 3.75%
Inflation peaked at 9% now down to 3.25%
Gas prices down
Stock Market up 23% for 2023
Trumpos plan if re-elected?,,,,,REVENGE, GO AFTER THE MEDIA,INDICT EVERYONE WHO EVEN THINKS BADLY OF HIM, REVENGE, MORE TAX CUTS FOR THE RICH, PARDON EVERYONE WHO PLEAD GUILTY FOR THE INSURRECTION, REVENGE, MILITARY ARE “SUCKERS” and of course the “ROT IN HELL” epic presidential christmas greeting…….REVENGE.
What exactly, specifically is his plan to make our lives better while he is busy doing this?
So you will find that a very very large part of the country (including many true Republicans) will not vote of the Traitorous, Lying, Grifting, Imbecile ever again.
Ray W. says
It might be wise to consider the possibility that JimboXYZ has never looked up the definition of recession, and that he simply does not know what the term “recession” consists of, in economic terms.
I looked up several definitions. The IMF site has a fairly straightforward one: “It is a sustained period when economic output falls and unemployment rises.
Other sites list various factors that are to be considered in the calculus of determining the onset or end of a recessionary period. These factors include:
1. A downturn in economic growth. Yes, GDP numbers fell for two straight quarters during the current administration, but zero economists argue that the temporary drop proved that America was in recession during that time. The long-term historical average for GDP growth is 3.19%. According to a NASDAC article published just over a week ago, the average GDP growth for the current administration has been 2.6%. The average GDP growth for the previous administration was 2.6%. By quarter, GDP figures were:
March 2021: 5.2%.
June 2021: 6.2%.
September 2021: 3.3%.
December 2021: 7.0%.
March 2022: -2.0%.
June 2022: -0.6%.
September 2022: 2.7%.
December 2022: 2.6%.
March 2023: 2.2%.
June 2023: 2.1%.
September 2023: 4.9%.
2. A downturn in productivity (how much workers produce). Productivity, while stagnant, has not been dropping in recent years.
3. A downturn in employment rates. The unemployment rate has hovered at near record lows for the past three years.
4. A downturn in currency values. The dollar has been relatively strong over the last three years, with the dollar reaching record highs against almost every foreign currency during 2022. It remained strong against the world currencies in 2023, but less strong than in 2022.
5. A sustained bear market for stock valuations. The stock market has consistently grown over the past three years, with the overall market up 25.7% since President Biden took office.
6. A downturn in consumer confidence, which is often accompanied by a rise in the savings rate. Since 1916, the Consumer Board, a non-partisan non-profit organization, has published monthly surveys of consumer confidence in three key facets. All three aspects of consumer confidence are rising right now. The three facets are: The Consumer Confidence Index. The Present Situation Index. The Expectations Index.
7. A rise in the bankruptcy filings rate. According to the American Bankruptcy Institute, both personal and corporate bankruptcy filings are on the rise.
8. A downturn in global commerce. International trade in both goods and services is up for the year.
9. A drop in the real income rate. Real income figures, even when considered in light of inflation, have consistently been rising over the last few years.
Economists consider several or all of these factors when determining whether a recession has occurred and how long it lasted. Economists are not arguing that the U.S. has been in recession at any time during the current administration. Yes, regions of the overall country have experienced what can be called recessionary conditions, but not the nation at large.
The longest recession in American history was actually a “double dip” recession, spanning the second quarter of 1978 to the end of the third quarter of 1982, a total of 54 months. The second OPEC oil embargo triggered the onset of recession and the onset of the Iran-Iraq War, which disrupted international oil trade, triggered the second dip. The longest true recession occurred during George W. Bush’s second term in office, when lack of oversight of financial markets, particularly the housing market, led to an extended recession.
Most recessions are preceded by a decline in consumer confidence in the overall economy, often because there has been upheaval in the energy industry.
Since 1850, the United States has weathered 34 recessions and one depression.
Some economists argue that a natural boom and bust economic cycle has occurred so often over the decades that it can be described as “normal” for an economy to experience recessions. According to the IMF, a study of 21 advanced economies from 1960-2007 (a period of 48 years), those 21 economies were in recession roughly 10% of the time.
During the Great Depression, overall average wages dropped by 42%, home prices fell by 25%, GDP dropped by 30%, and stock values plummeted, with many becoming worthless.
Since every single month during the current administration’s term has seen jobs added, according to BLS reports, it is hard for JimboXYZ to argue that America has spent even one month in recession over the past 35 months. Jobs added, according to BLS reports, have always been significantly above those needed to keep pace with population growth.
Is it fair to argue that JimboXYZ has lived the same 35 months that we all have, but he missed much of what actually happened during those months? Perhaps, the definition of “confabulation” might help us all understand how he can be so wrong in his memories. “The use of imaginary experiences or made-up information to fill missing gaps in memory.”
Steve says
The Dollar Index is at 103ish and topped out at 115plus. A break of 83 or so would be a breakdown of the 200DAY MA. The demise of the Dollar is premature.
Biden isn’t in charge of paving FPC Roads. You are in a Fantasy World
Sherry says
@jimbo. . . Please, this is a new year. . . let’s have intelligent discussions about the article at hand, that begin with “credentialed facts”. Thanks! Happy New Year!
Ray W. says
In what appears to be more good news for the short-term U.S. economic outlook, the BLS monthly JOLTS (job openings and labor separations survey) report, which issued earlier today, reveals that job openings remained relatively stable compared to last month, at 8.79 million posted job openings. This means that American employers are actively seeking out employees, i.e., they have jobs that need to be filled.
Since the unemployment rate remains low, with just under 6 million unemployed people in America, for a wide variety of reasons, there are nearly 1.5 job openings per unemployed person. Economists generally agree that a balanced healthy economy has a job openings rate that ranges between 1.0-1.2 job openings per unemployed person. For quite some time, the rate was above 2.0 job openings, which suggests the presence of a tight labor market, and concurrent pressure on employers to raise wages in order to attract scarce employees. This leads to inflationary pressures on rising wages and, therefore, on rising prices. One example of this occurred in North Florida this summer. The News-Journal ran an article first published in the Tallahassee Democrat. The owner of a tomato packing plant was interviewed just after the law criminalizing the driving of undocumented immigrants took effect. If an migrant labor family had 15 legal immigrants and three undocumented immigrants, the legal immigrants can be arrested if they are caught driving with an undocumented immigrant in the vehicle. Entire families left Florida for other fields in other states. The owner commented that he had long been a supportive Republican, but he had lost so many immigrant employees who had left his farm’s region for other states that he had to offer $30 per hour to hire enough local people to pack the tomatoes harvested from his family’s large farm holdings.
What is the moral of the story? A balanced economy is healthier than an unbalanced economy. Too many unfilled open jobs is but one piece of an unbalanced economy. One of the several purposes of the Fed raising lending rates is to cool an overheated economy. That effort seems to be working as intended. The Fed’s goal is to slowly drive down the job openings statistic to a lower number, but not so rapidly that it spirals downward out of control, at the risk of large-scale unemployment rises that leads to a bout with recession. Just under 9 million unfilled job openings is far better than just 0ver 12 million unfilled job openings, but the goal remains a number between 6 and 7 million job openings. If unemployment numbers were to rise, which it hasn’t during the entire term of the current administration, then the ideal number of job openings will rise, too. Since any unemployment rate of 4% or less is considered “full employment”, we have enjoyed full employment status for quite a long time.
I am not arguing that this proves that the current administration’s policies are working. I am arguing that capitalism works best when a plethora of factors are working together, each in balance, leading to a healthy balanced overall economy. When President George H. W. Bush famously raised taxes after pledging “no new taxes”, not only did he lose reelection, but the economy then began to roar at a great pace during the entire two terms of the Clinton administration. Over those eight years, the stock market rose 228.9%, by far the best rise during any of the seven presidents who have occupied the White House over the past 40 years (Trump’s four-year term saw a rise of 50.9% in stock market values, despite a huge tax cut). The total number of jobs created during the Clinton years is the highest in the last 60 years, by percentage (the current administration argues that it is the best, but the pandemic had destroyed so many jobs that the current numbers are skewed – yes, job growth is strong, but it should be strong in a recovering economy). The Treasury recorded a tax surplus for two of Clinton’s eight years in office, the only time we actually paid down the national debt since the early ’60’s. Early in W’s first term, Congress passed legislation that significantly cut the tax rate. Job growth for those years was anemic, at best. The tax surplus disappeared, and we returned to huge deficits in federal spending. The stock market dropped 26.5% in value during those eight years. I argued then and I argue now that W’s slashed tax rate unbalanced a previously healthy economy. After all, the economy boomed during the 10 years of H.W.’s higher taxes and it stumbled during seven years of W’s administration.
To repeat, we had what some called a “high” tax rate during the Clinton years, caused by Bush’s tax increase. I argued then and I argue now that we had a far more balanced economy during the Clinton years, firing on all cylinders. We paid down some of the national debt. By almost every measurable economic statistic, we enjoyed positive economic growth throughout those eight years.
I went to a report issued by Investipedia, revised on 9.23.23, to cross-reference the total deficit increase by president and the percentage of increase in national debt by president. According to Wikipedia, when Reagan took office, the national debt was $738 billion. The numbers for each of our last seven presidents are as follows:
Reagan (eight years): $1.6 trillion added to national debt. 160.8% increase in national debt.
George H. W. Bush (four years): $1.21 trillion added to national debt. 42.3% increase in national debt.
Clinton (eight years): $1.26 trillion added to national debt. 28.6% increase in national debt.
George W. Bush (eight years): $4.22 trillion added to national debt. 72.6% increase in national debt.
Barack Obama (eight years): $7.66 trillion added to national debt. 64.4% increase in national debt.
Donald Trump (four years): $6.7 trillion added to national debt. 33.1% increase in national debt.
Joseph Biden (31 months): $2.5 trillion added to national debt. 8.8% increase in national debt.
Draw whatever conclusions you will, but I argue that we have been on a spending spree ever since Reagan took office (from $738 billion to roughly $33 trillion in 42 years (+)), with most of the least damaging deficit increases, by percentage of overall debt, occurring during Democratic administrations.
In sum, we need roughly 3 million more workers to bring our open jobs rate into a balanced state. We aren’t going to get them from our current unemployed pool of workers. Many within that pool are caretakers for elderly or disabled family members. Others learned how manage a household economy during the pandemic and are not ready to return to work; they can live off one family member working if they watch their nickels and dimes. Some are now home schooling their children and will return to the labor force when their children age out of the school system. We will have to either slow down the economy so as to cut the open jobs rate or we can add workers through immigration. Our national birthrate has been falling for years and we will not get enough new workers by increasing the birth rate, as it will take 18 years to add workers from that source. Like it or not, the least bad option is to increase or work force through immigration. Immigration has bolstered our national economy for the last 235 years. Why would it stop doing so today?
Ed says
LEGAL immigration. Congress needs to act to create a manageable legal immigration system to stem the influx of illegals. The reality is we have a system that can’t confirm names or birthdates of many flowing over our borders. You and I can’t get on a jet without legal identification but immigrants fly on their word and a government document that was provided on scant information.
A while back I posted that we were approaching a tipping point and was quickly rebuffed that I was an alarmist and that these immigrants did not cost the American tax payer anything and in fact added to the economy. Anyone remember? May I suggest that as many public officials including big city democratic mayors are sounding the alarm bells, I just might have been correct. The costs appear to be burdensome.
I’m not arguing that eventually many of these people will become productive citizens but a legal pathway is needed sooner then later.
California is currently providing free health care to these migrants to the tune of 3.1 billion while swimming in an ocean of deficit. Is that fair to the hard working citizens?
Nearly every illegal immigrant is receiving or has received some type of welfare. Yes, it’s a humanitarian crisis but how far can we stretch this rubber band. I know they can’t get jobs so we have to feed and house them, but why not correct the system? Yes, it’s complex but if we can’t create a system to fix it then at least put a moratorium on this influx somehow someway to allow the country to assimilate the ones that has entered already.
The do nothing strategy or hope and prayer doesn’t seem to be working. Do we even have a strategy?