Economic Outlook
By: Russ Colbert
Summer 2024 (Vol. 42, No. 2)
The Federal Reserve left rates unchanged at the last meeting as expected. The Federal Reserve has recently mentioned that they anticipate one rate cut this year, down from three mentioned earlier in the year. The start of the first-rate cut will depend on the incoming data. They still want to see further improvement in the inflation data to be sure a rate cut will not spark an increase in inflation. The first quarter of this year showed strong labor markets and higher inflation, but conditions have moderated in recent months. We should continue to see further deceleration in growth, which should produce a lower inflation rate. We have seen slow and steady progress since the higher readings on inflation during the start of the year. The twelve-month average is coming in at around 3.0 percent. That is over and above the twenty plus percent increase we have experienced over the past few years.
The labor market seems to remain strong coming in this year at a healthy average of around 250,000 jobs per month along with steady wage growth. We cannot prove it, but it is believed that some of the lower-level jobs are being filled by the recent surge in immigration. Unfortunately, the unemployment rate has moved a little higher to 4.0%. The number of job openings has fallen recently. The most recent retail sales data has shown flat spending and a contraction when removing volatile products like gasoline.
First quarter GDP was revised down to an annual rate of 1.4%. We have experienced modest growth during the 2nd quarter of the year, currently estimated to be over 2.0%. We are estimating more growth and improvement in the U.S. economy and in the global economy throughout the rest of this year as interest rates are forecasted to start to come down. We see the U.S. economy improving in the second half of the year. Currently the bond yields, CD’s, and other types of fixed rate instruments remain near their highest interest rate levels for the past 17 years. We believe with today’s elevated yields they continue to offer an attractive investment for the conservative and moderate risk portion of an investor’s portfolio. The stock market should also continue to be attractive, as well as volatile, as interest rates are reduced by the Federal Reserve over the next year or two.
The economy should continue to grow over the next few years as interest rates come down. With inflation slowly coming down and the job market improving, some forecasts that the Federal Reserve will keep rates steady before a quarter point cut in September or during the last quarter of 2024. Consumer spending is expected to pick up. Real disposable income is expected to grow nearly 3 % next year. Also forecast of solid job gains, wage growth. Investment in artificial intelligence is rising and recessionary fears are fading making business leaders more confident. Business investment is expected to grow by nearly 2.0% by the end of 2024.
Existing home sales are expected to be very weak next year as mortgage rates remain high. Residential investment is ending the year flat. The current low affordability and tight supply of existing homes should generate a modest home price growth of about 1% this year. Federal government spending is forecast to be flat and the state and local government spending should have an increase of around one-half of one percent. U.S. imports have eased from the elevated levels (fueled by pandemic stimulus), but the U.S. exports remain depressed. The experts predict a recovery in foreign economic growth next year that will boost demand for U.S. exports. That is expected to narrow the trade deficit enough to contribute significantly to our GDP. I feel the elections in November are significant to the economy performing very well or slowly. Especially should we have an increase in taxes as well as excess spending by our government.
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Russ Colbert
Senior Portfolio Manager
1-888-878-0001
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.