Reasons to be optimistic about the US economy in 2024

The world's largest economy is on solid footing entering the new year, whether inflation, unemployment or wage growth are considered.

In 2022, many people worry that 2023 will be the year the US falls into recession. However, this economy has been unexpectedly vibrant. The US is moving towards a "soft landing" that many people once considered impossible.

On CNN , Justin Wolfers - Professor at the University of Michigan commented that the economy not only avoided recession, but also overcame the impact of the Russia-Ukraine conflict, oil price shock, disagreements between politicians and investors. series of other problems.

The International Monetary Fund (IMF) in October 2023 forecast that the US would grow by 1.5% in 2024. The Organization for Economic Cooperation and Development (OECD) also estimated similarly. This speed is twice as high as the UK and far ahead of the euro area.

The US economy still faces many risks and challenges, from the conflict in the Middle East, this year's presidential election, to the problem of expensive house prices. However, experts say there are many reasons to be optimistic about this economy in 2024.

Inflation cools down

US inflation reached a 40-year high in June 2022. At that time, very few people thought that prices could cool down as quickly as they are now. The consumer price index (CPI) in November 2023 only increased by 3.1%, down sharply compared to 9.1% in mid-2022.

In November, the personal expenditures price index (PCE) - the US Federal Reserve's (Fed) preferred inflation measure - also decreased for the first time since mid-2020. Both food and energy prices here all go down.

People shop at a market in New York City (USA). Photo: Reuters

Cooling inflation will help households' disposable income increase, strengthening consumption and economic growth. This figure is approaching the Fed's 2% target and is expected to reach this mark by the end of next year.

When inflation decelerated, the Fed also stopped raising interest rates to avoid derailing the economy and worrying investors. In the latest policy meeting, Fed officials predicted at least three interest rate cuts next year.

However, according to the CME FedWatch interest rate tracking tool, the market currently believes that the probability of the Fed cutting interest rates from March 2024 is 89%. The total reduction next year could be around 158 basis points (1.58%). A decrease in reference interest rates will pull down many other interest rates, from car and home loans to credit card interest rates.

Stocks exploded

Cooling inflation, easing recession fears, and expectations of interest rate cuts have pulled US stocks up in the last two months of the year. The S&P 500 index has increased for nine consecutive weeks - the longest since 2004. The Nasdaq Composite is up 43%.

The stock market does not always accurately reflect the real economy. However, in this case, Wall Street has shown optimism about the US economy, especially the issue of inflation and the possibility of a soft landing. These two points are beneficial for both people and investors.

The job market is solid

Despite the Fed sharply raising interest rates, the unemployment rate in the US is still at a 50-year low, at 3.7%. Initial applications for unemployment benefits are currently at a record low at 218,000. This is a sign that many businesses are hesitant to let workers quit.

If this trend continues, consumption will be supported. Consumption is currently the main driving force of the US economy.

"As long as the unemployment rate remains at record lows, the economy will be fine," said Mark Zandi - chief economist at Moody's Analytics.

Income increases

After Covid-19, prices increased faster than income, causing Americans' real income to shrink. However, this trend has recently changed.

Reuters quotes official data showing that hourly wages in the US in November increased by 4% compared to the previous year. This rate decreased slightly, but was still above the 3% level that officials considered consistent with the 2% inflation target. Observers expect that over time, as inflation gradually goes down, people's real income will improve.

In a speech at Spelman College early last month, Fed Chairman Jerome Powell said that people's savings from the pandemic may be running out, but rising wages will still support consumption.

"As long as the unemployment rate remains low, and wages are rising faster than inflation, there is no reason why consumer activity should not increase," Powell said.