Many consumers fear a recession in 2024 but economists don't see big storm clouds ahead
Susan Tompor, Detroit Free Press
Updated 10 min read
Just a year ago last fall, it seemed to many as if a recession were inevitable in 2023 — if one hadn't already started.
Didn't happen.
Now, even though some consumers remain on edge, some economists remain optimistic about the economic outlook in 2024.
Austan D. Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago, who participated in a moderated Q&A at the Detroit Economic Club on Tuesday, didn't give an economic forecast but acknowledged that 2023 turned out better than many had hoped as the Fed aggressively raised interest rates.
Federal Reserve Bank of Chicago president and CEO Austan D. Goolsbee, left, speaks with Detroit Regional Chamber president and CEO Sandy K. Baruah during a Q&A for the Detroit Economic Club meeting on Tuesday, November 14, 2023, at The Masonic in Detroit.
Goolsbee, who became the head of the Chicago Fed in January, told the group at the Masonic in Detroit that the U.S. economy has avoided a recession, even though many thought that wouldn't be the case given Fed's fight against serious levels of inflation.
He attributed the economy's strength to fixes in supply chain woes that were triggered during the COVID-19 pandemic, improvements in productivity and an overall confidence by many that the Fed was serious about getting the job done and bringing inflation down.
The traditional theory has been, he said: “If you have to get inflation down a lot, they only can do it with a great deal of pain.”
But the U.S. economy didn't see a great deal of pain.
"Every time the Federal Reserve has gotten inflation down significantly, there's been a massive recession to do it," Goolsbee said Tuesday.
The single largest drop in inflation in a year, other than wartime, he said, was under then Federal Reserve Chairman Paul Volcker in 1982. And the jobless rate skyrocketed to nearly 11% by the end of 1982.
Chairman of the Federal Reserve Board Paul Volcker, left, says a word to the Chairman of the House Ways and Means Committee Dan Rostenkowski of Illinois and Rep. Barber Conable (R-N.Y.), Feb. 23, 1982 on Capitol Hill in Washington, prior to appearing before the panel concerning the economic condition of the U.S.
This year, he said, could be even better and see the single largest drop in inflation in a peacetime economy in 100 years.
And, he noted, the U.S. jobless rate hasn't gone above 4%.
The pain, he said, has been focused in certain areas, such as homeownership. It's less affordable, for example, for many to buy a new house because higher interest rates are driving up monthly payments. Goolsbee said he will be watching housing inflation in the coming months to see what progress is being made.
Employment overall, he noted, has remained strong and the economy avoided repeating the horrible recession that was seen in the 1980s when the Fed last raised rates dramatically to fight high inflation. It's a scenario that wasn't expected by many back in 2022.
“The only thing is there is a lot of pain from inflation, too," Goolsbee said. "The insidious pain of inflation is very real pain.”
Goolsbee has said he's neither a hawk nor a dove on inflation. He's said: “I’m not a bird. I’m a data dog.” His focus, he said, is empirical work and data.
While the Fed has been successful in bringing inflation down, Goolsbee acknowledged that a disconnect remains between the positive economic data and people’s feelings about the economy.
Many say they feel the economy is bad or even horrible, he said, but at the same time they often note that their own personal financial situations are good. Consumers keep spending, even though consumer sentiment is more pessimistic.
Asked about the UAW strike and the union's tentative agreements with the Detroit Three, Goolsbee said: “My only nagging fear is they’ve got to approve this.”
In the frame capture from video, UAW President Shawn Fain gives an update on the details of the tentative agreement the UAW announced with Stellantis during a Facebook Live event on Thursday, November 2, 2023.
This week, we've heard more results of ratification votes held at UAW locals across the country, including those representing workers at General Motors, and some notable rejections are creating more uncertainty. Not all UAW members, particularly at GM, are satisfied with many of the details in the tentative agreements and some locals are rejecting the deal. Voting is ongoing.
Final votes from GM locals are due to the UAW by 4 p.m. Thursday, according to a person familiar with the union’s voting process. Ford totals are expected by Saturday. Stellantis total are expected early next week.
Oddly, Goolsbee said in Detroit Tuesday, that research indicated that all auto strikes in modern memory didn't do much of anything to the national economy because the strikes didn't last that long.
As for the latest UAW strike against the Detroit Three, he said, "mostly it’s not rippling through the economy.”
Tracking the numbers for clues to financial stability
Inflation remains a concern but has cooled significantly from the sizzling 9.1% year-over-year spike in June 2022.
Goolsbee said the latest CPI data, released Tuesday, "looked pretty good." But he noted that the Fed has a way to go before reaching the central bank’s 2% inflation target.
Federal Reserve Bank of Chicago president and CEO Austan D. Goolsbee, left, speaks with Detroit Regional Chamber president and CEO Sandy K. Baruah during a Q&A for the Detroit Economic Club meeting on Tuesday, November 14, 2023, at The Masonic in Detroit.
Consumer prices rose 3.2% year-over-year in October, according to data released Tuesday by the U.S. Bureau of Labor Statistics. That's a smaller increase next to the 3.7% year-over-year gain for September.
Falling gasoline prices, down 5.3% year-over-year in October, and a substantial drop in fuel oil prices — down 21.4% — contributed to the milder inflation figure. The value of used cars and trucks fell year-over-year by 7.1%.
The outlook for 2024 isn't terribly robust, according to some forecasts, but many economists do not foresee a recession. Many economists are no longer talking about a "soft landing" or mild recession after 11 interest rate hikes by the Federal Reserve since March 2022 to smack down rampant inflation.
Instead, the latest economic buzz phrase is "no landing" — as in no recession ahead.
"We're likely to dodge a recession in the year ahead," said Bill Adams, chief economist at Comerica Bank in Dallas, who spoke Nov. 8 to a group of Comerica clients in Detroit.
Some growth ahead
The U.S. economy is projected to grow at an annual rate of 1.7% in 2024, according to 34 economic forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecast is on an annual-average over annual-average basis. The results were released Monday.
The group of forecasters predicts the economy will expand at an annual rate of 1.3% in the fourth quarter; real GDP is expected to increase 2.45% overall in 2023.
Real GDP — an inflation-adjusted measure that reflects the value of all goods and services produced by an economy — surged to 4.9% at a seasonally adjusted annualized rate in the third quarter of 2023, up from 2.1% in the second quarter. The third-quarter gain was the fastest growth rate since late 2021.
Mark Zandi, chief economist for Moody's, is among the economic forecasters surveyed by the Fed. Zandi told the Detroit Free Press he would put the probability of recession in the coming year at 25%. The risk of a recession, he said, is elevated, given that in a typical year the risk of a recession would be 15%.
Zandi expects real GDP of 1% in the fourth quarter, and 1.7% for calendar year 2024.
"I think the Fed is finished raising rates, although the bar is high for cutting them," Zandi said. "That will require inflation to be clearly headed back to the Fed’s target, and I don’t expect that to happen until next summer."
Adams, who also is part of the group of 34 forecasters surveyed, sees GDP growing in a range of 1% to 1.25% in 2024.
"I think the economy is going to slow but the economy has been running much hotter than expected in 2023," Adams told the Free Press.
"And we should take seriously the possibility that the economy continues to beat expectations in the next year."
UAW impact still to be seen
Adams said he had been closely watching the unfolding of the UAW strike against the Detroit Three, which began Sept. 15, to judge its potential impact on the economy in Michigan.
The tentative agreements reached with the UAW at Ford Motor Co., Stellantis and General Motors gave hope that the strikes are likely to be more or less resolved, even though ratification votes are continuing, Adams told the group gathered at the Detroit Golf Club.
UAW members who were on strike at the automakers returned to their jobs once the tentative agreements were reached, even though members still must vote on the contracts.
Bill Adams, chief economist at Comerica Bank in Dallas, said the U.S. economy and the Michigan economy are likely to dodge a recession in 2024.
Michigan's jobs picture, no doubt, he said, will take a hit once numbers are released for October. Those on strike don't count as unemployed. Layoffs relating to the strike, such as those at auto suppliers who were able to claim unemployment benefits, would factor into the state's jobless figure if those workers were laid off during the entire week as of Oct. 9.
In some cases, Adams noted, some small businesses might have delayed hiring during the strike because they weren't sure what consumer demand would look like in the weeks ahead, if the strike continued. Industrial production likely fell in October, he said, with manufacturing production down during the UAW strike.
If the strike had lingered past Halloween, Adams said, the impact on the economy and possible hiring for the holidays would have been worse. But he remained optimistic that the contracts would be ratified now that workers are back on the job, even as the ratification votes continued through November.
Adams acknowledged that he was concerned about the high risk of a recession in 2023 but is happy that he was wrong on that call.
Several individual states — not including Michigan — gave out inflation relief checks in 2023. Social Security beneficiaries saw an 8.7% cost-of-living adjustment in 2023, which followed a 5.9% increase in 2022. Consumers kept spending, many times tapping into savings built up during the pandemic.
In addition, Adams noted, that this year consumers benefited overall from lower prices at the pump. "When people think inflation, the price that they know best is the gas price they see as they're driving down the highway," Adams said.
The nation’s average price of gasoline fell 4.6 cents a gallon from a week ago to $3.33 per gallon as of Sunday, according to GasBuddy data. The national average is down 24.8 cents a gallon from a month ago and down 42.6 cents per gallon from year ago. Based on that data, 11 states saw the average priced below $3 a gallon.
In Michigan, the average was $3.35 a gallon, according to GasBuddy.
Some consumers are benefiting as the stock market had a decent year in 2023, as well, particularly for the NASDAQ and Standard & Poor's 500 indexes.
To be sure, Adams said consumers aren't feeling upbeat about buying big ticket items, like homes or cars and trucks, especially when they're often borrowing at higher interest rates to take on mortgages or car loans.
Even so, the story isn't the same for everyone. Someone who bought a home and took out a mortgage at ultra-low rates in 2020 or 2021 — and doesn't want to move — could be feeling far better off financially.
Adams said a lot of remaining pent up demand for new cars and trucks will likely drive sales in 2024 but he maintains that automakers will have less pricing power and need to do more discounting next year to reach more than 16 million in total vehicle sales.
Adams maintains that the Federal Reserve is likely done raising rates — unless economic growth proves stronger than expected in the next few months or we start seeing large, faster wage growth in broader parts of the economy outside of unionized industries. Only about 6% of the private workforce, he noted, is represented by a union.
Currently, Adams is forecasting that the Fed will take action later in 2024, with the first of a string of three quarter-point rate cuts beginning in June.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.Auto writers Jamie L. LaReau and Phoebe Wall Howardcontributed.
