US Economic Update June 2024
Much of my forecasting work these days focuses on the US economy. When I’m working with the board of a financial services company or even an industry trade association, my clients want me to outline a look ahead for 6 to 18 months.
About 18 months back the prevailing opinion in my client base was that a post-pandemic recession was inevitable. It was certain, they said. I still see strategy documents from that time that stated a recession within 6 months as an assumption.
I disagreed and still lean that way. The Fed has done a masterful job in clamping down on the factors driving inflation and consequently stand to do something thought impossible: land a big beast of a complex system in turbulence. In other words – do a soft landing for the US economy.
It's not over yet. I gave a fairly rosy view of the “soft landing” performance a few months ago with leaders in the commercial construction sector. I thought the odds for a cut in interest rates by the Fed might be happening about now as I write this. Didn’t happen. While inflation growth is slower, we’re not out of the woods.
I reminded my audience at that national conference of one of my opening, boiler-plate pieces of advice. Forecast, don’t predict. And the definition: a forecast is a look ahead that takes uncertainty into account and changes with time and new information.
Here in June 2024 at this writing we just got one of the signals or “new information” that helps a forecaster – the May jobs report. It is robust. 272,000 new jobs created. A slight uptick in unemployment to 4%, first time in 2 years it’s been there. Compensation climbed. Not great news for inflation.
I don’t see an interest rate cut now until the Fall. Probably before the election but not during the summer.
The “inflation hawks” of the Fed like Raphael Bostic, president of the Atlanta Fed, believes the Open Market Committee will need to keep rates up at the 5+% level into the fourth quarter of 2024. That’s the most conservative opinion. I believe the actual reduction will occur before that but it depends on how the economy performs and whether inflation can actually be reversed to come closer to the desirable 2% per year growth.
Currently my forecast is for 1-2 interest rate cuts before the end of calendar 2024. I’d estimate interest rates at year end in the 4.75% area.
I was out of the country for a month in the EU last month. I looked closely at food, clothing, and real estate prices. They were surprisingly affordable where I was traveling. I’m of the opinion that a big driver of price escalation in the US is due to corporate maximization of margins. Business leaders are gauging “elasticity” – how much they can increase prices – as having more headroom. The consequence is that large swaths of the country are in “distressed” condition. A recent analysis of Census Bureau data shows the South and Sunbelt deeply affected. Prices are the leading issue in the election. The implications encompass who is in the White House and Congress as well as the retail environment for this year.
My continued advice if you’re a business principal: Forecast. Don’t predict.
About 18 months back the prevailing opinion in my client base was that a post-pandemic recession was inevitable. It was certain, they said. I still see strategy documents from that time that stated a recession within 6 months as an assumption.
I disagreed and still lean that way. The Fed has done a masterful job in clamping down on the factors driving inflation and consequently stand to do something thought impossible: land a big beast of a complex system in turbulence. In other words – do a soft landing for the US economy.
It's not over yet. I gave a fairly rosy view of the “soft landing” performance a few months ago with leaders in the commercial construction sector. I thought the odds for a cut in interest rates by the Fed might be happening about now as I write this. Didn’t happen. While inflation growth is slower, we’re not out of the woods.
I reminded my audience at that national conference of one of my opening, boiler-plate pieces of advice. Forecast, don’t predict. And the definition: a forecast is a look ahead that takes uncertainty into account and changes with time and new information.
Here in June 2024 at this writing we just got one of the signals or “new information” that helps a forecaster – the May jobs report. It is robust. 272,000 new jobs created. A slight uptick in unemployment to 4%, first time in 2 years it’s been there. Compensation climbed. Not great news for inflation.
I don’t see an interest rate cut now until the Fall. Probably before the election but not during the summer.
The “inflation hawks” of the Fed like Raphael Bostic, president of the Atlanta Fed, believes the Open Market Committee will need to keep rates up at the 5+% level into the fourth quarter of 2024. That’s the most conservative opinion. I believe the actual reduction will occur before that but it depends on how the economy performs and whether inflation can actually be reversed to come closer to the desirable 2% per year growth.
Currently my forecast is for 1-2 interest rate cuts before the end of calendar 2024. I’d estimate interest rates at year end in the 4.75% area.
I was out of the country for a month in the EU last month. I looked closely at food, clothing, and real estate prices. They were surprisingly affordable where I was traveling. I’m of the opinion that a big driver of price escalation in the US is due to corporate maximization of margins. Business leaders are gauging “elasticity” – how much they can increase prices – as having more headroom. The consequence is that large swaths of the country are in “distressed” condition. A recent analysis of Census Bureau data shows the South and Sunbelt deeply affected. Prices are the leading issue in the election. The implications encompass who is in the White House and Congress as well as the retail environment for this year.
My continued advice if you’re a business principal: Forecast. Don’t predict.