Heading into the election year, President Biden has gone on a parade of boasting about the supposed upturn in the economy. The 81-year-old president claims inflation and unemployment are down while predicting lower interest rates in the near future. Meanwhile, Americans are not as optimistic about economic growth leading into 2024.
A key bragging point held by Democrats is the lack of recession economists believed to be inevitable in 2023. Despite the “soft landing predictions,” taxpayers still feel the sting of inflation at the grocery stores, gas pumps, and housing costs. While the president would love to claim he’s solved the economic issues in America, is that really the case? Let’s explore some of the facts.
Inflation Cooldown?
In general, inflation declined in 2023 thanks to the Federal Reserve. Americans feel inflation drops the most in energy costs, which were down 5.4% on a year-over-year analysis. Gasoline costs are down 8.9% compared to 2022, and fuel oil prices dropped an incredible 24.8% over 2022 costs. Furthermore, utility gas service prices are down 10.4% compared to November 2022.
However, most American citizens still struggle with increased costs of food inflation. The grocery bill has risen steadily, with a rate of nearly 3% compared to 2022. The average cost of groceries, including vegetables, canned goods, bakery items, cereals, and dairy, was compared to last year. Surprisingly, meat such as chicken, pork, and beef were down on a monthly basis. Restaurant costs were up 5.3%, making it more expensive to enjoy an evening away from the dishes.
Fed May Lower Interest Rates
On the horizon, Federal agencies may look at pivoting from interest rate spikes to lower rates in 2024. If these dreams come true, it would solidify a win for American taxpayers in the ongoing battle of inflation.
At the end of December, mortgage rates were down for a record nine weeks in a row, giving a much-needed relief to the housing market and real estate investors. Mark Zandi, chief economist at Moody’s Analytics, told CNN he expected the Federal Reserve could decrease interest rates as many as four times in 2024. Zahndi estimates these cuts will begin as early as May. However, Goldman Sachs estimates an earlier rate cut, possibly starting in March.
Reduced interest rates could be a welcome reprieve for potential home buyers in 2024. Not all economists are so optimistic. Some suggest the data is too new to predict a major economic upturn in 2024. Naturally, the Federal Reserve reducing interest rates is mostly prediction.
Last Year’s Stocks
In the final quarter, 2023 ended with a significant rally for the stock market, with the S&P 500 tracking up. 24% and the Dow Jones Industrial Average grew more than 13%. The majority of the boom took place in the final two months of the year, leading to a hopeful outlook for some heading into 2024.
With the year ending on a higher note, several economists were quick to claim victory. Quincy Krosby, chief global strategist at LPL Financial, said to CBS News, “Investors were able to accept the fact that the market would close the year on a higher note. Above all else, it was broad participation in the market that reinforced and confirmed gains for smaller company stocks were particularly important.”
2023 proved to be a prediction-buster for stocks, especially in the final moments of the year. However, are celebrations premature? Is the swift turn in the last two months of 2023 enough to predict good things in 2024?
Lower Layoffs in the Job Market
The unemployment rate is just 3.7%, lower than the previous half-century. Layoff claims reached a historic low of 218,000, indicating motivation to keep employees in place. If this employment rate continues to track throughout 2024, it could lead to more capital spending and a stimulated economy.
This small silver lining is inadequate compared to the global predictions surrounding the job market in 2024. The International Labor Organization predicts an additional 2 million workers are expected to be seeking jobs in the coming year. Global unemployment rates are expected to rise to 5.2%, indicating celebrating fewer layoffs in 2023 may be short-lived.
Furthermore, disposable income has declined in the last year, meaning consumers have less money to spend in general. Not surprisingly, this trend is something the president and his administration have little to say about.
Paychecks Keeping Up with Prices?
While some economists indicate paychecks are finally catching up to inflation, the majority of Americans say their paycheck is inadequate to account for the rising cost of living. While many Americans did see a salary increase this year, most aren’t feeling any extra padding in their wallets, due to inflation costs. Other workers took matters into their own hands and thought of a better paying job to accommodate for everyday living price hikes. This helped accommodate a more substantial job market while allowing workers to seek better compensation at other companies.
However, despite a robust job market, most workers found they still felt a pinch in their pockets when it comes to paying everyday expenses like groceries, utilities, and housing. Many of these workers indicated they were worse off in 2023 than they were the year prior. While there was some economic growth and job market notoriety, if the majority of Americans feel their paycheck is insufficient to meet inflation, it hardly seems like a reasonable bragging point for the president.
Other Economists Not Convinced
Nigel Green, founder and CEO of deVere Group, told Forbes that the late turn in the 2023 stocks is not enough to celebrate. Despite the uptick, it is too soon to know if the Federal Reserve will turn interest rates just yet. He further said, “The Fed will not want to take the risk of pivoting on policy too soon by cutting rates. We believe that the data is still not strong enough for the central bank of the world’s largest economy to commit to reversing its most aggressive tightening campaign in decades—yet the markets seem ready to confidently and heavily price-in rate cuts.”
This cautious approach is more a practical route, considering the current dangers the economy faces and its volatility over the past few years. There are a number of factors working against an optimistic perspective.
What to Watch This Year
Looking forward, 2024 holds many potential hazards to the success of the US economy. Every year brings a new set of challenges and issues that could contribute to an economic downturn. Here are some of the factors that may cause a sudden drop in economic prosperity:
- 2024 Election Cycle: The election always plays a significant role in how an economy turns. With the possible power shift comes a measure of uncertainty, which can trickle down to economic well-being.
- Global Conflict: The ongoing conflict in the Middle East and the failure to halt Russia’s oil market during the invasion in Ukraine leave a taste of unpredictability for American economists. Unfortunately, with global conflicts, the economic impact is always unpredictable and volatile.
- Shipping Concerns: In the first of the year, shipping giant Maersk halted shipping container routes through the Red Sea, due to unsafe conditions and attacks by the Iran-backed Houthi. Other companies sought alternate routes, leading to delays in container shipping and increased cost of goods. The Swift change to longer, more costly shipping routes means consumers will pay more for food, technology, goods, and products.
- Energy Transition: COP28 ended last year with a rallying cry to ramp up energy transition efforts and move away from fossil fuels. In other words, energy economics is about to explode with ups and downs. Rapidly moving away from major economic drivers, like oil, will undoubtedly leave a mark on the US and global economies.
These significant factors could detract from the economic positivity we’ve seen in 2023. While we may have avoided a recession last year, 2024 is a different ball game. You can bet the election year will dramatically impact the global economy and Americans’ bottom line. As 2024 unfolds, we will watch economic indicators closely to supply our readers with the invaluable, trustworthy insight you’ve come to expect from Shale.
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