The month-long shopping spree in the US is coming to a close. Wages are plateauing, and Americans are facing the task of repaying their student debts. According to Edin Mujagic, 2024 could be a challenging economic year.
As economists contemplate the future in the face of falling leaves, the recurring question arises: What can we expect in 2024? Will the US economy encounter a recession in 2024?
Although a recession was anticipated this year, the US economy thrived in the first nine months. It seems to be a case of ‘refers of postponement.’
Examining the economic fundamentals, a recession in the US in 2024 appears highly probable. Two indicators with a reliable track record for predicting recessions confirm this outlook.
The US economy enjoyed a robust 2023, driven by strong consumer activity. A prolonged shopping spree, fueled by lower inflation and increased wages (averaging over 5% per year), contributed to the overall economic prosperity.
However, the scenario is expected to change in 2024. Inflation is stabilizing, and wage increases may taper off as unemployment shows signs of a marginal rise. This poses a threat to consumption, with little chance of a significant uptick in spending in the coming months.
A major factor influencing household budgets is the resumption of student debt repayments, a burden for many households with an average monthly payment of $503 on a debt exceeding $40,000.
With the pandemic over and student loan obligations resuming from October 1, households face reduced disposable income. Additionally, higher interest rates on existing debts are exacerbating financial pressures, leading to an increase in defaults on credit card balances and personal loans.
The prospect of a recession in 2024 is not surprising. Two key indicators support this outlook. Firstly, the negative difference between 10-year and 3-month interest rates in the US, a signal that has historically preceded recessions by 9 to 17 months. This difference turned negative in October 2022.
The second indicator is the Sahm indicator, named after economist Claudia Sahm, which signals an impending recession when the three-month average of US unemployment rises by 0.5 percentage points compared to the lowest rate in the preceding 12 months.
About the author: John Campbell
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