2024 Economic Outlook

The CFO Forum gathered on Thursday, February 15th for the 2024 Economic Outlook. Our Keynote Speaker was Matt Schoeppner, Senior Economist and Head of Economic Research at U.S. Bank. His colleague and friend Brian Mahony, Chief Revenue Officer at Elavon, kicked off the program.

Key Takeaways

• The U.S. Economy Outperformed 2023 Expectations in Activity, Labor Market, and Inflation

• Avoided recession and grew strongly with real GDP growth.

• The housing market remains weak due to higher mortgage rates.

• Higher interest rates are also impacting manufacturing activity.

• The National Savings rate was 7% during the pandemic due to stimulus checks and lack of spending. Now at 3.7% and it has been now for about the past year and a half, two years.

• Today’s strong labor market is motivating consumer spending.

• Job gains are most prevalent in Healthcare, Leisure/Hospitality, and Government, while layoffs are very low

• Slower Wage Pressures Will Likely Require Further Reduction in Labor Market Tightness

• Price Pressures Have Been Cooling in The Face of High-Interest Rates

• Goods Prices Have Fallen Recently, But Housing/Services Prices are Still Rising at an Elevated Pace

• Fed Will Likely Need to Begin Cutting Rates by Early Summer, to Align Policy Stance w/ Cooling Inflation

2024 Outlook & Expectations

• Soft Landing Idea - Slowing growth, disinflation, and policy easing are expected.

• 'Worker Gap' Continues to Close, But Income Rises Faster than Inflation.

• High Borrowing Costs Continue to Represent a Drag on Business Investment and Household Demand

• Affordability Crunch is Primary Headwind

  • Vehicle affordability has taken a hit due to supply issues.

  • Housing affordability is stretched due to supply, higher prices, and elevating costs.

• High Rates/Prices + Tight Credit Continue to Weigh on Investment/Spending

  • Poor Affordability, Stricter Lending Standards, and Cooling Labor Market Will Be Key Drivers of Activity

• Slower But Still Positive Economic Growth

  • Households and Businesses Still have Economic Horsepower to Support Broader U.S. Economy

• Labor Demand Continues to Slow but Not Fall Off a Cliff

  • Businesses Continue to Moderate Hiring but Retain Existing Workers

• Tight Labor Market + Sticky Services Inflation Keeps Fed on Alert

  • After Holding Policy Rate Steady for Nearly a Year, Fed Begins to Gradually Cut Rates by Mid-Year—to Align w/ Inflation.

• Economy Still Vulnerable to Being Blown Over into Recession

  • Tight Credit + Poor Affordability are Primary Headwinds

The Past

• Back in late 2019, the Fed raised rates already, and they were trying to slow the economy down - this was worrisome. The pandemic hit the economy in March, April, and May, and 2020 was in just in free fall.

• The Fed quickly reacted to try to stabilize financial markets. The Federal Government pumped in trillions of dollars early on, to keep consumers' businesses afloat. However, nobody knew where the bottom of this was.

• Fast forward to the middle of 2022, things start to open, and it turns out that we came out of this thing quickly, so everything opened. GDP returned to pre-pandemic levels within 18 months which was about ½ to one-third of the time it took during the financial crisis. Unemployment hit ~15% in April of 2020. It quickly came back down and continued to drift down over the next year into the late part of 2022 to where we are now. The surprise was really doing it again with the amount of fiscal support that was provided.

• Banks have tightened up credit pretty significantly, but you also have all these excess savings that were accumulated during the pandemic and so households have been gradually sort of tapping that over time.

Q&A

Question: Is our national debt a problem?

Answer: Debt is only going to become a problem when financial markets decide it is a problem. People thought that 30% debt to GDP back in the nineties was a problem. Then we raised it, then it jumped up to 60% going into the financial crisis. Then it jumped up to 80% after the financial crisis. Then by the time we hit the pandemic, it was roughly 90 percent and we dumped $5 and $6 trillion in the economy even more. And now we're running at 110% of GDP. I do look at debt as inflationary. Pumping in trillions of dollars in the economy after the pandemic showed that the government can be unnecessarily inflationary with fiscal spending. We are moving towards a soft landing - steady growth next year.

Question: There was talk in the fall about the reinstatement of student loan payments. Is it too early or are we beginning to see the impact on household balance sheets with those payments?

Answer: I think it was unknown at the time how impactful this was going to be, but it turned out to be nothing. Students knew this all along and it hasn't been as impactful.

Question: Right now, we're anticipating about a $1.7 trillion deficit for this upcoming year, which is about 6% of the GDP. If we weren't deficit spending last year and this year, what would our GDP have been?

Answer: It would still have been positive. The government contributed not as much as you thought. Maybe half a percentage point to the to the growth.

Question: Countries are coming together to try and change their currency. What would that look like? What would be?

Answer: It would be material if the rest of the world turned on the dollar. I think it is highly improbable. You would think that the Euro would start competing against the dollar, but it just has not. If it happened, it would be significant, but it is not and a very low probability. In the past two years, the dollar has only strengthened, and it's strengthened because the US economy has very much outperformed the rest of the world.

Question: Can you talk about November and the election?

Answer: It will depend in terms of fiscal policy on the makeup of Congress. It looks like the Democrats are likely to pick up some seats in the House, but I do not necessarily know whether it is going to be enough to flip it. The Senate will likely stay Republican. If Biden wins, which given the economy is still so strong, it's hard to believe that an incumbent would lose an election like this.

However, things are very unusual right now. The Trump tax cuts are coming up for renewal in 2025 which will expire. But if Trump takes over, I think that is going to be one of the biggest discussion points of the election as well as trade and immigration.

About US Bank

U.S. Bancorp (USB) is a diversified financial services company that offers retail and commercial banking, private banking, and wealth management solutions through its subsidiaries. Its portfolio of products and services comprises savings and checking accounts, certificate of deposits, consumer and business loans, personal and business lines of credit, mortgages, insurance, savings and investment products, brokerage and fund services, credit and debit cards, asset and wealth management, and financial planning solutions. The company also provides leasing, international banking, payment services, private banking, cash management, and online and mobile banking. It primarily operates in the Midwest and West regions of the US. USB is headquartered in Minneapolis, Minnesota, the US. Learn more

About the Speaker

Matt Schoeppner, Senior Economist and Head of Economic Research at U.S. Bank. Based in Minneapolis, Minnesota, he is responsible for the development, coordination, and production of analysis and commentary on the U.S. macroeconomy. Matt joined US Bank in early 2019 after more than a decade of professional experience in macroeconomic research, analysis, and reporting—in both banking and public finance. He holds a Master's degree in economics from the University of Maine and a bachelor's degree in mathematics and economics from Gustavus Adolphus College in Minnesota. Matt and his wife, Katie, live in Minneapolis with their two young children. He enjoys playing hockey and golf, being outdoors, traveling, and most of all spending time with his family.