Slowdown in US Economic Growth
As of September 15, 2024, the US economy has displayed signs of decelerating growth. Real GDP growth is forecasted to drop to about 0.7% in 2024 from a healthier 2.8% rate in 2023. This slowdown can largely be attributed to the effects of monetary policy adjustments and the natural waning of the post-pandemic economic recovery.
Inflation and Monetary Policy Trends
Inflation, which has been a persistent concern over the past year, seems to be showing a moderating trend. Core PCE (Personal Consumption Expenditures) prices are expected to rise by 2.4% in 2024, a decrease from 3.4% in 2023. Though inflation is moderating, core services inflation remains at elevated levels.
Responding to these economic shifts, the Federal Reserve is poised to adjust interest rates. If inflation continues on its current path, the Fed might commence policy rate normalization, potentially cutting rates by 25 basis points at each meeting beginning in June 2024.
Labor Market and Consumer Spending
The labor market has shown signs of deceleration as well, with payroll growth slowing and the unemployment rate anticipated to rise to the mid-4% range by the end of 2024. This trend suggests a cooling off in job creation across various industries.
Specifically, sectors such as construction, health care, leisure, and hospitality have experienced job growth, whereas manufacturing sectors have seen declines. Alongside this, consumer spending growth is expected to decline in 2024 due to reduced excess savings, stagnant wage gains, and emerging signs of consumer stress.
Fiscal Deficit and Economic Outlook
The federal deficit, while expected to narrow in 2024, will continue to be significant. This high deficit reflects some belt-tightening measures and increased interest outlays on government debt. Despite these constraints, the broader economic outlook suggests a potential rebound in 2025.
In the first quarter of 2024, real GDP increased at an annual rate of 1.3%. This rise was bolstered by consumer spending, residential and non-residential fixed investment, and increased state and local government spending, even though there was a decline in private inventory investment. By the end of 2025, GDP growth might surpass 2%, assuming the Federal Reserve meets its 2% inflation target and lowers interest rates further.