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The US economy isn't out of the woods yet, but it's doing a lot better than many forecasters thought it would just a few months ago.
At least better than economists at S&P Global Ratings thought it would.
They now expect US real gross domestic product to grow by 2.4% in 2024, up from their forecast of 1.5% in November. Real GDP is the value of all goods and services a country produces, after adjusting for inflation.
Before the Bell spoke with Satyam Panday, chief economist at S&P Global Ratings, to discuss the state of the economy and how GDP impacts your wallet and 401(k).
This interview has been edited for length and clarity.
Before the Bell: You upgraded your economic growth forecast by almost a full percentage point. Do you consider that a significant change?
Satyam Panday: It's been almost three months since our last prediction, and this is a significant revision. Since November we've had data come out that shows much stronger growth in the jobs market, so we made some changes. But the overall message still remains the same, we will be slowing down to below trend growth for some time, it's just that the timing is pushed back because of the strength of US households.
In 2022 the narrative was that recession was imminent, but then forecasters kept pushing it back another six months. Are you saying that's still the case?
Let me clarify — we do have a cyclical slowdown coming in the US.
A cyclical slowdown has to come unless you're in the camp that thinks structural growth of the economy has risen dramatically. We don't think that's the case. The last two quarters were probably the peak growth momentum for this particular expansion, and it is going to come down to below trend. We don't see a recession in the baseline, but a recession can still happen in a worst case scenario, like if the Federal Reserve keeps [interest rates higher] for longer or there's some sort of external shock.
Some economists say we've already had a recession roll through different sectors but avoided a broad downturn. Do you think that's the case?
It looks like that is exactly how this is going to play out this time around. We saw manufacturing weaken, then we saw the housing sector weaken and now it seems like those areas have found their floors — especially the goods-producing sectors. They're going through a cyclical uplift, just as the pandemic-era pent-up demand in the service sector starts to sort of fade. I don't like the word recession, but it is a cyclical correction.
Something that has been unique to this business cycle is the amount of fiscal policy that is in play — that has kept household balance sheets and business sector balance sheets intact. Think about the 2022 policies that were passed, the Inflation Reduction Act, the CHIPS and Science act. Those are playing into all of these numbers. If you just look at the public sector, its direct contribution to growth [as measured by GDP] right now is about 0.6 percentage points. That's more than three times what you would see normally.
You cite the strength of the labor force as the main reason for this upward revision. Do you see employment softening anytime soon?
There are some pockets where the delinquency rates have started to move up in consumer credit cards and in auto loans. Those are a couple of cracks in the overall direction of consumer health.
And even though wage growth has remained elevated you can see the number of hours worked start to come down. That's the first sign that overall income is not as strong as what wage growth is suggesting.
There are some other red flags, a lot of the contribution to growth is coming from, cyclical sectors like healthcare. Independent businesses aren't planning to hire as much as they have in previous years, and temporary hires are growing. These suggest that as we go through the year we will start to see demand for employment soften even more.
Why should we care about GDP? How does it impact our 401(k)s or other investments?
The jobs market is a byproduct of GDP growth. If the economy is strong, the labor market is also healthy because businesses have a reason to keep on hiring and adding to wages. Productivity growth means the GDP is growing and the impulse to fire employees is going to be lower. The impulse to hire is going to be a little bit higher. That's a key component of any person's life: your job.
At the end of the day, it all comes down to jobs. I think that this should make people feel a little bit better about the prospects for the year.
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