There are a lot of reasons to feel good about the economy right now. Unemployment is low. Inflation is receding. The supply shocks of the pandemic are in the rear-view.
But the positive indicators seem to be weighed down by a malaise. Maybe that’s because of ratcheting global tension, widespread armed conflict and a deeply divisive election in the United States.
We reached out to three experts in the hopes that they might offer clarity on the year ahead.
Why does it feel like the economy is sputtering even though most traditional measures are pointing in the right direction?
Freedman: The recent economic pace is unsustainable and is likely to slow down, so while we prefer to rely on data versus “feel,” our analysis supports the intuition.
Think of the economy as a runner on a treadmill. The runner — business and consumers — has been sprinting as evidenced by recent GDP readings above 5 percent, much higher than the 2-2.5 percent sustainable rate. The runner has been fueled by stimulus savings, robust job prospects/wages and ongoing consumer demand helping businesses.
Our economics team anticipates that the runner will slow and that growth will settle in closer to 1-1.5 percent for calendar year 2024. A weakening labor market and higher interest rates will crank up the ramp on the treadmill, but the runner will still make progress in the form of positive GDP growth.
Brown: This was one of the big economic puzzles of 2023, though consumer confidence rebounded at the end of the year. Economists I speak with seem to have reached a consensus: consumers remember a time when prices for key staples — gas, groceries, etc. — were much cheaper. That has eaten away at wage gains. Economists cheer disinflation (and with good reason!), but American consumers’ dissatisfaction seems to stem from still-high prices for plenty of the things in everyday shopping carts.
Still, we should watch what consumers do — not just what they say. The data show consumers are spending at a healthy clip, despite those reported bad vibes.
Jha: Inflation is indeed coming down but that only means that the rate of increase in prices is slower, not that prices themselves are decreasing. We are witnessing disinflation, not deflation.
Consumers may be gloomy because they experience the high levels of prices of general goods and services even if the rate of that increase is subsiding.
Meanwhile, good housing, affordable healthcare and affordable college remain out of reach for many.
Has the Fed managed the elusive “soft landing” on inflation? When will we know?
Freedman: Unfortunately, we won’t know for at least another few quarters as official GDP data is always reported in “arrears” versus in real time, and the upcoming year will have plen