What to expect in the economy in 2024

The economy could slow in the first half of 2024 because consumer spending is likely to slow. Meanwhile, job openings are going to remain far above the number of unemployed workers. The economy is poised to grow once inflation falls further and Americans absorb the effects of higher interest rates.

Even with plentiful jobs and strong wage growth, the compound effects of savings being spent down, credit cards spent up, higher interest rates, and lingering inflation will weigh heavily on the economy in 2024.

The economy has still not fully absorbed the impact of higher interest rates that were necessary to fight inflation, and those higher rates will be a continuing drag on the economy.

While inflation is coming down, it remains above the Federal Reserve’s (Fed) 2% target. That means it will remain a hefty burden on consumers’ budgets and reduce the chances the Fed can lower interest rates soon.

All these factors add up to slowing consumer spending and a slowing economy in 2024 compared to a solid economy in 2023. Whether the consumer slowdown causes a recession remains an open question. The combined force of these headwinds may cause a recession in 2024 (a recession is defined as two consecutive quarters of negative economic growth), although experts have been calling for a recession for the past 18 months.

The last time we had two such quarters was the first and second quarters of 2022. Not many people remember those six months as a recession because key economic indicators such as jobs, spending, income, and manufacturing output all increased during that time – the first time they did so during a recession. The first half of 2022 is largely forgotten as a recession because on average the American people did not feel economic pain then.

We could have a similar scenario in 2024. The economy could slow, perhaps all the way to the point of meeting the technical definition of a recession, but because businesses need workers so badly, we do not see widespread layoffs. In fact, businesses may keep hiring even as the economy cools. In that case, we could have another recession where there the American people do not experience much economic pain.

Once we emerge from that expected slowdown, the outlook for the U.S. economy is sunny for the remainder of 2024 and into 2025. Usually when an economy is hit with shocks, bubbles within the economy burst, or weaknesses are exposed. We have had three large shocks in a row over the last three years (COVID-19 pandemic, inflation, and higher interest rates) with no fallout, suggesting the underlying state of the economy is strong.

Once inflation falls further and the economy more fully absorbs higher interest rates, it is poised to grow robustly.

Geopolitics could also hurt the economy. Intensification of the Russia-Ukraine and Israel-Hamas wars could destabilize the global economy, which would hurt the U.S. economy. And there is always the chance of an unforeseen conflict arising.

Lastly, there remains domestic U.S. political risk. Congress still needs to pass a budget for fiscal years 2024 and 2025. It also needs to raise the debt limit before January 1, 2025. Failure to do any of these would mean a blow to the economy.

The economy faces serious challenges in 2024, as it always does. The worker shortage means consumers are better equipped to weather a potentially slowing economy to start the year. It also means that any slowdown is likely to be mild and that the economy is likely to rebound strongly.‌

Chris Romer is president & CEO of Vail Valley Partnership, the regional chamber of commerce. Learn more at VailValleyPartnership.com