Savannah Chamber

8 2 homebuilding subtracts from it, resulting in a slightly positive net contribution. Inventory changes will be a neutral factor while net exports will subtract slightly from GDP growth. Because we expect an economic slowdown, inflation-adjusted GDP will grow by 0.8 percent in 2024 compared to 2.1 percent in 2023. The slowdown in job growth will be more pronounced, however. Non-farm employment will grow by 0.3 percent in 2024 compared to 2 percent in 2023. With employment growing more slowly than the labor force, the unemployment rate will rise from 3.6 percent in 2023 to 4.2 percent in 2024, not enough to trigger a major pullback in consumer spending, which will grow very slowly. Nominal personal income will grow by 4 percent compared to 5.3 percent in 2023. The annual average rate of inflation will drop from 8 percent in 2022, to 4.1 percent in 2023, and to 2.7 percent in 2024. Again, assuming nothing else goes wrong, we believe the odds narrowly favor expansion over recession. Consumer Spending Inflation-adjusted personal consumption expenditures will increase at an annual rate of about 1 percent in 2024, or about half the gain estimated for 2023. This lackluster growth reflects (1) exhaustion of most of the excess savings people accumulated during the pandemic; (2) the lagged effects of substantially higher interest rates; (3) slightly higher unemployment; (4) much less job hopping; and (4) some erosion of the relatively strong economic and financial positions households achieved over the past three years. Older, higher-income, high-net worth households saved the most and appear to be using much of their unplanned accumulations as retirement savings. In contrast, low- and middle-income consumers spent their excess savings. The demographics of the big savers therefore will spread the spending from accumulated savings over many years, which will help the businesses that cater to their needs. Households' excess savings therefore will continue to support consumer spending in 2024, but to a far lesser extent than in 2022-23. We expect a personal savings rate of 5 percent, which is below the pre- pandemic savings rate of about 8 percent. The lower savings rate will help consumers sustain their spending as the economy slows and the labor market softens. In the coming year, we expect an unusual degree of job security for an economy that is barely growing. Stable labor market conditions will maintain consumer confidence, which will help support consumer spending. Because the labor market is still tight, compensation per hour will rise by about 3 percent, but the number of hours worked will decline. In addition, no major new federal government stimulus programs are likely. Nominal personal income will rise by about 4 percent, which implies that inflation- adjusted personal income will increase by just over 1 percent. Income from interest earned will increase much faster than wage and salary income. Personal income derived from federal transfer payments will not increase very much, however. Consumer credit outstanding will grow by about 5 percent, which is about the same pace as in 2023. Credit will be expensive, but recent inflation will push consumers to use more credit. Most lenders have tightened credit to customers already, so we do not expect very much additional tightening in 2024. Fortunately, household balance sheets are in good shape, which will support credit growth. Although we do not expect changes in households' net worth to boost spending in 2024, a sharp reversal of wealth-effect spending is a legitimate risk for consumer spending.

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