Kiplinger's GDP Outlook: Slowdown in 2024 Will Be Short-lived

Growth for the full year will still be okay.

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Economic growth will slow down to 2% or less in the fourth quarter after a robust 5.2% rise in the third quarter. That will bring 2023’s growth rate to 2.5%, better than 2022’s 1.9%. Consumer spending has supported the economy longer than many expected. Despite higher interest rates, motor vehicle demand has been strong as consumers make up for lost time because of previous shortages. Also, government deficits have contributed to recent growth.

We expect a slowdown in the first half of 2024, but no recession. Despite the slowdown, 2024 growth should still be a moderate 1.7%. Both consumer and business spending are expected to slow into next year, but not so much as to cause a recession. The economy’s resilience may be due in part to personal income growing at 3% to 4% this year after taxes and inflation, which is supporting consumer spending. Also, most consumers and businesses still have good balance sheets, with much of their debt locked in at low interest rates.

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But consumer expectations of future economic conditions are still poor. Non-wealthy households have largely depleted the extra savings buffers that they had accumulated during the pandemic and will need to boost their current low savings rate. Defaults on motor vehicle loans and credit cards have jumped, though they are only a little above what would have been considered to be normal levels before the pandemic. Businesses are likely to conserve cash and limit their spending. Export markets figure to weaken. Government spending will continue, but no major new spending programs to give growth a boost are on the horizon.

The banking system should be fine, but banks are going to be reluctant to press their luck with much additional lending after the recent rise in interest rates inflicted losses on banks’ portfolios of Treasury bonds. Instead, they appear to be in the process of tightening lending standards because of the many economic uncertainties. 

The Federal Reserve will likely not be raising interest rates any more because of the expected slowdown. However, it is also not likely to cut rates anytime soon because it is still determined to combat inflation. Inflation is on a downtrend, but the Fed wants to make sure it doesn’t get stuck at a level higher than 2%.  

Source: Department of Commerce: GDP Data

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David Payne
Staff Economist, The Kiplinger Letter

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.