U.S. Economic Growth Has Defied the Odds

Review the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

  • U.S. economic growth has defied the odds
  • The labor market is off to a strong start to the year
  • The road to 2% inflation may be bumpy, but is still intact

Happy Saint Patrick’s Day and the first day of spring – two celebrations to look forward to in the coming days. What’s not to like about good luck charms, all things green, leprechauns and the arrival of warmer weather? And just like the seasons change, the economy goes through its own variations – moving from cold to hot, with the Federal Reserve (Fed) behind the scenes trying to guide the economy somewhere in between. Whether it was luck or skill (or maybe both) the Fed has done a good job navigating this economy, despite the great challenges it has faced over the last four years. The Fed’s Tuesday/Wednesday meeting next week will include its updated economic forecasts, the potential path of interest rate cuts (the ‘dot plot’) and the Chairman’s press conference. Here’s what has changed since its December 2023 projections:

  • Economic growth has defied the odds | With the U.S. economy posting two consecutive quarters of 3%+ GDP growth, recession calls have quieted down. In fact, Google searches for the term ‘recession’ have declined to the lowest level since 2004. While seasonal factors and cold weather have muddied the data to start the year, the U.S. economy remains on solid footing due to healthy consumer fundamentals (i.e., household net worth hitting a record high and personal incomes climbing at their fastest pace since July 2021 in January) and solid residential fixed investment. This has pushed consensus growth estimates up 0.7% (to 1.9%) since the start of the year, marking the second largest upward revision at this juncture of the year over the last ten years (trailing only the 2021 COVID recovery). While economic data remains strong, there have been some warning signs over the last few months that suggest growth could slow. For example, credit card debt is soaring, borrowing rates are at record high levels, credit card delinquencies, particularly those 90 days or more past due, rose to the highest level since 1Q21, and both consumer and business confidence have ticked lower since the start of the year. The upside growth surprises should see the Fed modestly increase its +1.5% 2024 GDP forecast; however, Chair Powell should reiterate the messaging in his semi-annual testimony before Congress last week – the economy is on the path for a soft landing, but it's too soon to declare mission accomplished.