The following article is based on our recent FS Insider podcast: ITR's Lauren Saidel-Baker on US Jobs Market, Growth Deceleration, and Consumer Outlook. If you’re not already a subscriber to our FS Insider podcast, click here to subscribe.
The US consumer will continue to provide support to the economy this year (see charts below) and help to prevent an ongoing contraction in the manufacturing sector from developing into a broader recession. However, US GDP will likely see a downshift in 2024, registering a little over 1% growth for the year, before the manufacturing and industrial sectors of the economy reach a final trough toward year-end. That’s according to the outlook from Lauren Saidel-Baker at ITR Economics, a firm that boasts an impressive 94.7% accuracy rate on its economic forecasts one year out.
Broad US Outlook
US economic growth has surprised to the upside and Lauren acknowledged the positive surprises, such as the robust fourth-quarter GDP and recent strong job numbers. However, she urged caution, emphasizing that despite the current strength, there are substantial headwinds ahead. While GDP has been stronger than expected, Lauren cautioned against excessive optimism, foreseeing a gradual slowdown throughout 2024, predicting it to be a somewhat subdued year with positive but cooler growth.
“We expect annual growth this year, about 1.1%. So again, this is not runaway growth. We might even see one quarter of pullback. I think that in the second quarter we could see it come in slightly lower in activity than the first quarter of this year, but again, this is still positive growth.”
Assessing Consumer Strength
Drawing a parallel with the 2015-2016 commodity price cycle, Lauren acknowledged the contraction in the industrial sector, predicting a trough in late 2024. However, she emphasized the resilience of the labor market and consumer spending, highlighting the significant role consumers play in driving two-thirds of US GDP. Despite anticipating a slight deterioration in consumer finances from their very strong position over the past two years, Lauren explained that the data is still supportive of ongoing consumer spending.
“We do think late 2024 is probably when we should expect the trough of the cycle for manufacturing, for the industrial economy. But on the other hand, our labor market is still very strong. Workers are bringing home higher wages, even on an inflation adjusted basis. So there's a lot of purchasing power out there. The consumer is actually still doing quite well, maybe not as gangbusters as they had been two years ago, but still in a very stable position.”
What About Rising Credit Card Debt Levels?
A surge in credit card debt levels is periodically pointed to as a concern that the consumer is “tapped out” and poised to pull back on spending, which would negatively impact the economy. Lauren explained how this data is often cited out of context, looking at the nominal level but without taking into account whether debt levels can be financed. When looking at this data holistically, a less alarming picture emerges, she stated.
“On an aggregate basis we have record high credit card debt. That's honestly true more often than it's not just because we have positive population growth… Our most recent reading that was 14.2%, which is up from the pandemic trough of about 12%. But, honestly, 14% is roughly akin to our best position at the best point in the last cycle around the 2015-2016 time frame. So yes, it is directional deterioration. But, overall, our delinquency rates in many cases are better than or close to our long-term averages…and with rising incomes, even adjusted for inflation…my data right now tells us that they can service these debt loads.”
Inflation Trajectory and Global Influences
Addressing the trajectory of inflation, Lauren maintained her outlook for a disinflationary environment, projecting a trough around 1.5% inflation for 2024. She pointed to global factors such as tensions in the Red Sea and the impact of drought-related disruptions on shipping routes through the Panama Canal as potential inflationary pressures. Lauren anticipates some easing in inflation but acknowledges the long-term demographic challenges contributing to persistent inflationary trends more long-term.
US Government Spending and Long-Term Risks
The conversation concluded with an exploration of the impact of US government spending on the economy. Lauren acknowledged the short-term benefits and tailwinds to growth in the near-term but warned of long-term risks associated with accumulating debt. She stressed the unsustainable nature of current spending patterns, particularly in the context of rising interest rates. ITR Economics is forecasting a depressionary-like scenario due to a confluence of long-term, secular trends converging around the 2030 timeframe. Lauren noted that ITR has maintained this 2030 forecast since 2014 and that the trends they’ve highlighted continue to align with this outlook.
To listen to this full audio interview, see ITR's Lauren Saidel-Baker on US Jobs Market, Growth Deceleration, and Consumer Outlook. If you’re not already a subscriber to our FS Insider podcast, click here to subscribe.
To sign up for ITR Economics’ research, go to www.itreconomics.com.
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