Savannah Chamber

7 1 The 2024 National Outlook Jeffrey M. Humphreys Terry College of Business, University of Georgia Our baseline forecast for the U.S. economy calls for an economic slowdown, but not a recession. The pace of GDP growth will drop from 2.1 percent in 2023 to 0.8 percent in 2024. Of course, this depends on the resilient labor market as well as the strong financial position of households to sustain the post-pandemic economic expansion. We assume no further tightening of monetary policy, but the inflation-adjusted interest rate will rise as inflation declines. In the second half of 2024, we expect modest easing of monetary policy, which will foster accelerated economic growth in 2025. In early 2024, however, economic growth will be close to a stall. There may be a quarter, or two, of slightly negative GDP growth, but the labor market will remain strong enough to stave off a technical recession. Yet the U.S. economy will be vulnerable to something else going wrong, such as an energy-price shock, a stock market crash, a federal fiscal policy blunder, a monetary policy mistake, another banking crisis, major labor disputes, or NATO gets drawn into a Russia-Ukraine war. Thus, we forecast a dangerously high 40 percent probability of a U.S. recession in the coming year. The main reason for the economic stall is the lagged effect of Federal Reserve's aggressive tightening of monetary policy. Large increases in policy interest rates over 2022-23 coupled with substantial reductions in the Fed's balance sheet —quantitative tightening—are curbing the highest inflation rate in 40 years. Thus far, progress has been made, pushing up the unemployment rate enough to dampen inflation without causing a recession. We expect that to continue. In 2024, the economy will grow very slowly rather than contract because the labor market will remain resilient. We expect the Federal Reserve to keep policy interest rates ste ady through mid-2024. By then, new data will indicate that inflation is under 3 percent on a sustained basis and is headed down. In addition, GDP and employment data will show that the economy is barely growing, and possibly contracting slightly. That will prompt the Federal Reserve to make its first rate cut. By late 2024 or early 2025, the pace of economic growth will rise to its long-term potential rate of GDP growth of about 2 percent and inflation will be about 2.5 percent. Statistically, consumer spending will make the largest contribution to GDP growth in 2024. We expect inflation-adjusted consumer spending to grow by about 1 percent, and we expect business' spending on nonresidential investment to grow by about 1 percent, too. Federal spending is likely to subtract slightly from GDP growth, but spending by state and local governments will contribute to it, so the net contribution of the government will be slightly positive. Housing is the most interest-sensitive sector and suffered from the Federal Reserve's pivot from easy money to tight money. In 2024, we believe that single-family homebuilding will add to GDP growth even as multi-family

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