The U.S. economy is wrapping up 2023 with solid indicators that have visions of a soft landing dancing in the heads of some analysts and investors. Wall Street has soared to record highs as the Federal Reserve signals a more dovish tone on interest rates, while inflation has slowly eased back from its historic highs of 2022. But the smart money doesn't share Wall Street's optimism. A national survey of leading economists finds most expect economic growth to slow considerably in 2024, down to about 1% for the year. At the same time, economists still put the odds of a recession in '24 at about 50-50.
Consumer spending and economic growth have remained strong throughout 2023, despite persistent inflation and uncertainty in global markets. But a closer look reveals numbers like projected 5.2% GDP growth in the third quarter are somewhat hollow. "A huge portion of that growth came from government buying things on debt, and consumers buying things on debt," says EJ Antoni, economist at the Heritage Foundation. "Both of those things are not sustainable."
"What has been noticeably missing has been sizable increases in real, fixed private investment," Antoni continues. "That's things like factories, things like machines, things like computers, the equipment that's going to give you productivity growth."
Indeed, U.S. manufacturing declined nearly one percent in November, its 13th straight month of contraction.
Despite those concerning fundamentals, the Fed appears ready to give the economy more juice heading into an election year, with three interest rate cuts now projected in '24. Antoni warns they are easing up too fast. "This Fed has signaled they're going to do their best to create the money needed to finance all the deficits that the Treasury is going to run over the next year," he tells KTRH. "That is going to provide a temporary boost to economic growth, but the problem is by the time 2025 rolls around, we're going to be right back on the inflationary roller coaster."
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