Maybe it’s going to work out after all?
There’s a lot of economic news this holiday week. The media is slowly but surely beginning the turn although they give Biden no credit even as Trump is out there saying we’re in a recession and acting as if he presided over Camelot or something.
But really, the news is good. Here’s one little data point from the professionals who have no reason at all to blow smoke. (After all, they can make money either way…) Here’s the Goldman Sachs projection for 2024:
Unemployment to stay low, 3.6%. Wage growth of 3.5% with inflation at 2%, meaning real wage growth of 1.5%. Overall growth of 2%. FRB starts cutting interest rates throughout 2024.
— Our most out-of-consensus call for 2024 is our growth forecast. Our 2% forecast for 2024 Q4/Q4 GDP growth is well above consensus of 0.9% and the FOMC’s 1.4% forecast. This reflects our view that the growth impulses from changes in financial conditions and changes in fiscal policy should be modest and roughly neutral on net next year. It also reflects our forecast that consumer spending will easily beat expectations—we expect 2% growth vs. consensus of 1%—because real income should grow about 3% and household net worth is close to an all-time high.
— Consistent with our growth view, we expect the labor market to remain strong. The healthy starting point of still-high job openings and a low layoff rate coupled with fading recession fears should support steady job gains in 2024 at a rate that gradually converges over the year to the current breakeven pace of about 100k. This should keep the unemployment rate low at around 3.6%.
–Wage growth and inflation should fall to roughly target-compatible levels in 2024. The main drivers of high wage growth over the last two years—extreme labor market overheating and big inflation shocks that sparked demands for larger cost-of-living adjustments—are now behind us. As a result, wage growth should keep falling toward the 3.5% pace we estimate is compatible with 2% inflation. Core PCE inflation slowed sharply in 2023H2 and appears on track to fall into the low 2s on a year-on-year basis by spring. We expect further rebalancing in the auto and housing rental markets to leave the year-on-year rate at 2.2% at the end of 2024, undershooting the FOMC’s 2.4% forecast, and we see a reasonable chance that it could fall below 2%.
–The rapid decline in inflation is likely to lead the FOMC to cut early and fast to reset the policy rate from a level that most participants will likely soon see as far offside. We expect three consecutive 25bp cuts in March, May, and June, followed by one cut per quarter until the funds rate reaches 3.25-3.5% in 2025Q3. Our forecast implies 5 cuts in 2024 and 3 more cuts in 2025. We also expect the Fed to slow balance sheet runoff in 2024Q4 and to end it fully in 2025Q1.
Seems promising, no? Here is some data about where we are this minute:
Jewelry sales are off. Better bring back Trump.
There’s a lot more promising economic news. I’ll share it as I find it.