(This article first appeared on Arab News at https://arab.news/yxwte)
By: Maria Maalouf, Media Fellow
What are the predictions for the performance of the US economy in the year 2024? Will it be a year of economic growth or recession? And how will the status of the US economy next year affect the outcome of the presidential elections in November?
The American economy is likely to slow in early 2024 because consumer spending is going to score low figures. Inflation is still high. Inflation this year was less severe than the previous year. However, it is still burdensome on the income of most US households. The typical economic rule is that when inflation is high, consumers slow their spending to save money. Weak consumer spending relates to negative or low rates of economic growth, according to a study conducted by the US.
From the US Chamber of Commerce: “The economy grew over 5 percent in the third quarter of 2023 and is tracking to grow over 1 percent in the fourth. Growth is projected to slow even further in 2024. For instance, the chamber projects the economy will grow a scant 0.2 percent and 0.4 percent in the second and third quarters, respectively. That is a far cry from growth in the third quarter of 2023.”
Yet, other economic reasons could deepen the sense of economic malaise in 2024. Many Americans were able to save money during 2020-2022. This was during the COVID-19 pandemic that caused a state of national and worldwide shutdown. People saved money by working from home, economizing their energy and transportation expenses, and benefiting from several federal and state benefits that were given to American households to help them fight the economic hardships of that epidemic. Unfortunately, most US economists believe that the pandemic-era savings are completely spent. As a result, credit card debts will rise sharply in 2024. More credit card debts entail higher interest rates. This could slow down further consumer spending.
Inflation is still more than the Federal Reserve’s 2 percent benchmark. It is a remote possibility that Fed Gov. Jerome Powell will take the measure to lower interest rates. This means that money borrowed from banks and other financial institutions will be paid through higher interest rates. The Fed Reserve has not found an ideal way yet to control and tame inflation.
High inflation in the US economy is related to many factors. Foremost among them is the worker shortage. This influences the supply of commodities and services. Little supplies of items to be bought mean a bigger demand and higher prices. The US economy is not expected to produce enough employment to compensate for this workforce shortage in 2024.
American politics is not helpful to the state of the current US economy. Congress must pass the budget for 2024 and 2025. Any failure to conclude a budget deal, especially in reaching an agreement on how to raise the debt limit before January 2025 could have very negative repercussions for the US economy.
In addition, there are other negative forecasts for the US economy. The real estate market could see plummeting economic indicators. Office space is being rented now at a much lower rate than what was the case before the pandemic. These real estate companies owe banks money. This could deepen the credit crunch further. Most of these banks loan money to small and middle-sized businesses. If banks are loaning people and institutions less money, the Fed must intervene to prevent the collapse of more banks and to dismiss any lack of confidence in the US economy.
Business investment is expected to be slow. According to a study by the investment bank, Goldman Sachs, business investment is expected to grow 1.75 percent in 2024. Mainly, the CHIPS Act and Inflation Reduction Act are the two congressional acts that are the biggest drivers for business investments. The CHIPS and Science Act is a US federal statute signed into law by President Joe Biden on Aug. 9, 2022. The act earmarks around $280 billion to help investment in high-tech manufacturing items, especially those related to investments in semiconductors. Therefore, the status of the US economy depends on how successful these Federal investments will be in generating new jobs and in creating good economic opportunities in general.
Geopolitics could have ramifications for the American economy. No one knows what the future holds for the war between Russia and Ukraine. If it continues, it will hurt the global economy due to the low supply of wheat and other essential agricultural products. Worse, is the absence of any clear sign of when Israel’s war of aggression against Gaza will end. These two critical developments are very serious handicaps to having a healthy global economy and a well-performing American economy next year.
The American people’s experience in the next few months will be one of living with a slowing economy. This will not be helpful to Biden and the Democrats. They could face a big political defeat if the American people judge the economy of their nation as struggling through a recession that must end.
• Maria Maalouf is a Lebanese journalist, broadcaster, publisher, and writer.
X: @bilarakib
