The Numbers Are Good, But the Vibes Are Off: Economic Experts Weigh in on Murky Year Ahead

two people sitting at a table with paperwork

There are a lot of reasons to feel good about the economy right now. Unemployment is low. Inflation is receding. The supply shocks of the pandemic are in the rear-view. 

But the positive indicators seem to be weighed down by a malaise. Maybe that’s because of ratcheting global tension, widespread armed conflict and a deeply divisive election in the United States.

We reached out to three experts in the hopes that they might offer clarity on the year ahead.

Eric Freedman

is chief investment officer for U.S. Bank Asset Management. He keeps a high-level view on capital markets around the world while overseeing more than $450 billion in assets.

Courtenay Brown 

co-authors Axios Macro, a midday newsletter that covers the pressing issues facing the global economy.

Sign Up for Courtenay's Newsletter 

Jaya Jha

Boone Assistant Professor of Economics at Davidson College, was one of few voices in early 2022 predicting that the economy would not slide into recession. So far, it looks like she was right. 

Explore the Economics Department at Davidson

Why does it feel like the economy is sputtering even though most traditional measures are pointing in the right direction?  

Freedman: The recent economic pace is unsustainable and is likely to slow down, so while we prefer to rely on data versus “feel,” our analysis supports the intuition.

Think of the economy as a runner on a treadmill. The runner — business and consumers — has been sprinting as evidenced by recent GDP readings above 5 percent, much higher than the 2-2.5 percent sustainable rate. The runner has been fueled by stimulus savings, robust job prospects/wages and ongoing consumer demand helping businesses. 

Our economics team anticipates that the runner will slow and that growth will settle in closer to 1-1.5 percent for calendar year 2024. A weakening labor market and higher interest rates will crank up the ramp on the treadmill, but the runner will still make progress in the form of positive GDP growth. 

Brown: This was one of the big economic puzzles of 2023, though consumer confidence rebounded at the end of the year. Economists I speak with seem to have reached a consensus: consumers remember a time when prices for key staples — gas, groceries, etc. — were much cheaper. That has eaten away at wage gains. Economists cheer disinflation (and with good reason!), but American consumers’ dissatisfaction seems to stem from still-high prices for plenty of the things in everyday shopping carts. 

Still, we should watch what consumers do — not just what they say. The data show consumers are spending at a healthy clip, despite those reported bad vibes.

Jha: Inflation is indeed coming down but that only means that the rate of increase in prices is slower, not that prices themselves are decreasing. We are witnessing disinflation, not deflation.  

Consumers may be gloomy because they experience the high levels of prices of general goods and services even if the rate of that increase is subsiding. 

Meanwhile, good housing, affordable healthcare and affordable college remain out of reach for many.  

Has the Fed managed the elusive “soft landing” on inflation? When will we know?

Freedman: Unfortunately, we won’t know for at least another few quarters as official GDP data is always reported in “arrears” versus in real time, and the upcoming year will have plenty of opportunities to challenge the Fed’s goals of managing full employment, price levels and stable long-term interest rates. We do have a soft landing of both inflation and economic growth as our base case for this year. 

Brown: It sure does look like the Fed has achieved a soft landing: inflation (by some key measures) is back at the Fed’s 2 percent target, all while the labor market and broader economy has stayed healthy. 

The big risk, of course, is that it looks and feels like we are coming in for a soft landing, only for there to be some unexpected turbulence. The Fed raised rates at the quickest pace in modern history. Monetary policy, as economists say, can have long and variable lags.

Jha: This may very well be the case. The fed acted late in taming inflation, but not too late, it appears. The personal consumption expenditure price index was 2.6 percent in November 2023, down from 7 percent 18 months before that.  

This taming of inflation has come along with much better than expected economic growth estimates/forecasts — approximately 2.5 percent (annualized) for the whole year (2023) and as high as 4.9 percent for the third quarter of 2023. 

Congress’s inability to pass long-term funding and the 2024 election are sure to bring stress. What kind of friction/threat does the fractious American political climate present to the economy? 

Freedman: As capital market analysts, we take an apolitical view on the topic, which helps us get to the critical issue: how will funding pressures impact borrowing rates for the government and therefore consumers? 

We are starting to see diminished interest in U.S. government debt from foreign buyers and, should demand decrease amidst projected supply increases, that can cause interest rates to rise even if monetary policy changes. 

Brown: Political brinkmanship was a central reason why one ratings agency downgraded the nation’s debt—while another suggested it could do the same. The stand-offs look set to continue in 2024, with a threat of a government shutdown looming and all the turmoil that brings to federal workers and the broader economy. 

Then there's the 2024 election that has the potential to be the most chaotic in recent memory — with big questions, including how the next commander-in-chief will steer the country in a world economy that looks to be de-globalizing.  

Jha: Short-run concerns from the rising deficit and debt are mild. Long-run implications are more serious: High borrowing costs economy-wide could crowd-out private investments, particularly in key areas of existential importance, such as renewable energy; and we could have higher interest payments on rising debt. We could see increased fiscal vulnerability to higher interest rates and loss of confidence in the solvency of the U.S. government, which may force interest rates and inflation to spiral upwards.

What are we not paying attention to that could cause disruption in the coming year? 

Freedman: The issues that could be disruptive include commercial real estate, higher borrowing costs due to incipient inflation and less demand for U.S. government bonds, plus the potential for election outcomes in Taiwan and the U.S. to force some trade imbalances that could become isolating. 

Brown: Global economists and monetary policymakers warn the 2020s will be more volatile than decades past — with more geopolitical conflict and economic/inflationary shocks. So far, they have been right with Russia’s invasion of Ukraine, the global banking crisis and the Israel-Hamas War. I’m watching for whether that tumult continues in 2024. 

I'm also curious if 2024 is the year in which we begin to see artificial intelligence tools like ChatGPT have turbo-charged impacts on productivity and the labor market.

Jha: There is a serious threat of deglobalization sweeping world politics. This is the biggest election year in history, with more than 4 billion people going to the polls. Many countries, including the United States, are likely to elect heads of state peddling protectionist demagoguery that will ultimately lead to higher prices for most goods and services for their countries’ residents.