The United States Economy started 2024 on a fairly strong footing. Multiple indicators of labor markets, business activity, and inflation are moving in a favorable direction. Kavan Choksi Wealth Advisor, however, does underline that headwinds including elevated interest rates and rising consumer debt would weigh on economic growth. Over time, consumer spending growth is likely to cool down and the overall GDP growth may slow to under 1% in Q2 and Q3 2024. The interest rates and inflation are likely to normalize eventually, while quarterly annualized GDP growth is likely to converge toward its potential of near 2% in 2025.
Kavan Choksi Wealth Advisor talks about the state of the United States economy
Despite facing increased inflation and interest rates, consumer spending in the United States demonstrated resilience throughout 2023. However, sustaining this trend might not be likely. In the latter half of 2023, the growth of real disposable personal income struggled to surpass that of real consumer spending. Notably, pandemic-induced savings are depleting, and there is a simultaneous increase in household debt, accompanied by a rise in delinquencies. The popularity of ‘buy now, pay later’ plans may further impede future spending as impending bills loom. Consequently, a gradual deceleration in overall consumer spending growth is anticipated, reaching a standstill in Q3 2024 as households grapple with finding a new balance between income, debt, savings, and expenditures. Although a softening in labor market conditions is expected during this period, a deterioration may not happen. With a decline in inflation and interest rates, a resurgence might be seen in consumption towards late 2024.
After a pop in Q2 2023, business investment growth slowed in H2 2023 with increases in interest rates making financing activities more costly. This trend may intensify in H1 2024. Residential investment that had been contracting since the year of 2021 started to grow again in Q3 2023. This was driven by persistent demand for homes and low supply. However, in the times ahead, residential investment growth may not improve majorly till the interest rates start to fall.
In 2023, government spending played a huge role in driving growth, largely due to federal non-defense spending related to infrastructure investment legislation enacted in 2021 and 2022. However, an anticipated deceleration in growth is foreseen for 2024 and 2025, attributed to the stabilization of infrastructure spending. Moreover, political uncertainties surrounding fiscal policy, debt, and expenditures may impact government spending dynamics in the upcoming years.
As Kavan Choksi Wealth Advisor says, the continued tightness in the labor market has been quite noteworthy over the past year. This trend is expected to stay the same in the coming quarters, ensuring that labor markets remain robust even as the overall economy slows down. The continued tightness is majorly a result of a shrinking labor force due to the retirement of Baby Boomers. Consequently, businesses are likely to resist laying off workers. This resilience is expected to prevent the overall economic growth from sliding into contraction and pave the way for a recovery in the subsequent year. When it comes to inflation, continued progress is expected over the coming quarters.