Will the U.S. Consumer Keep the Economy Growing in 2024?

Thursday’s report on the U.S. Q4 GDP is expected to show the economy grew at a 2.0% annualized pace. That is down sharply from the 4.9% growth rate in Q3, which was the strongest since Q4 of 2021.  However, strength in consumer spending is expected to support growth, with Q4 household spending expected to grow by 2.5%.  Last Wednesday’s U.S. Dec retail sales report was stronger than expected, up +0.6% m/m versus expectations of +0.4% m/m, signaling consumer demand remains resilient.

At the beginning of 2023, most analysts had predicted a recession.  However, if Thursday’s GDP report shows another quarter of solid U.S. growth, it will bolster the outlook for a soft landing of the economy sought by the Federal Reserve.  Over the past year, stronger-than-expected growth proved forecasts for a U.S. recession wrong.  With inflation falling and the labor market relatively strong, the consumer may be confident enough to continue carrying the economy this year. 

Recent surveys of consumer confidence show consumers remain upbeat, which bodes well for consumer spending in the near term.  Last Friday’s University of Michigan U.S. Jan consumer sentiment index rose +9.1 to a 2-1/2 year high of 78.8, stronger than expectations of 70.1.  Also, inflation is falling faster than most expected, further bolstering consumer confidence.  The University of Michigan U.S. Jan 1-year inflation expectations unexpectedly fell -0.2 points to a 3-year low of 2.9% versus expectations of no change at 3.1%. 

The robust U.S. labor market is another supportive factor for consumer spending.  Weekly filings for unemployment insurance remain low, unexpectedly falling last Thursday to a 16-month low, which suggests companies are retaining staff, even as hiring has been slowing.  Also, the combination of easing inflation and gradual softening in the job market has boosted expectations for the Fed to begin cutting interest rates as soon as March, which could further boost consumer confidence and keep consumer spending strong.

However, headwinds for the consumer remain.  Businesses are facing weak foreign growth, questions about the sustainability of domestic demand, and uncertainty ahead of elections in November.  Even with the headwinds, indications from the latest earnings reporting season now underway suggest consumers remain resilient.  The CEO of Procter & Gamble said after it reported earnings Tuesday that “the U.S. continues to be very solid, continues to impress.”  Also, Mizuho Securities USA believes combined spending by households and governments should continue to offset lackluster investment, saying, “It’s up to the consumer and the government.  Between the two of them, they can get you 2% growth on average.” 

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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