Title: US Economy Surges Forward: A Closer Look at the Economic Recovery and Its Impact on Your Wallet
The US economy is demonstrating signs of resilience and growth beyond what many economic forecasters initially anticipated. This improvement in the economic landscape is particularly noteworthy when considering the revised forecasts from S&P Global Ratings. The ratings agency now projects a 2.4% increase in US real gross domestic product (GDP) for the year 2024, up from their earlier forecast of 1.5% made in November. Real GDP refers to a country’s production of goods and services after adjusting for inflation.
In an interview with Before the Bell, Satyam Panday, the chief economist at S&P Global Ratings, discussed the current state of the economy and its implications for your wallet and 401(k).
Question: A significant upgrade in economic growth forecast, do you consider this a substantial change?
Answer: Yes, it’s been over three months since our last prediction, and this revision is indeed significant. The recent data shows a much stronger jobs market recovery, leading us to make some adjustments. However, the overall message remains consistent: below-trend growth is expected for an extended period. The US economy will eventually slow down, but a recession isn’t anticipated in the baseline scenario. However, there’s still a risk of a recession if the Federal Reserve maintains high interest rates for an extended period or if there’s an external shock.
Question: Previously, many experts believed a recession was imminent but kept delaying the timeline. Is this still the case?
Answer: Yes, we do anticipate a cyclical slowdown in the US economy. However, it’s important to clarify that the last few quarters have shown peak growth momentum for this expansion cycle, and a slowdown below trend is inevitable. We don’t foresee a recession in the baseline scenario but remain cautious about potential external risks such as prolonged high interest rates or unforeseen economic shocks.
Question: Some economists argue that a recession has already rolled through various sectors without causing a broad downturn. Do you agree?
Answer: It seems that this economic cycle is indeed following an unusual pattern. We’ve witnessed manufacturing and housing sectors weaken, but they appear to have found their floors. Goods-producing sectors are now experiencing a cyclical upturn as pandemic-era pent-up demand in the service sector begins to fade. Although I hesitate to use the term “recession,” it appears that this is a cyclical correction.
Question: What role has fiscal policy played in maintaining economic growth?
Answer: Fiscal policy has been instrumental in keeping household and business balance sheets healthy. The 2022 policies, such as the Inflation Reduction Act and the CHIPS and Science act, have contributed significantly to the growth numbers. The public sector’s direct contribution to GDP currently stands at approximately 0.6 percentage points, which is more than three times the usual amount.
Question: Are you seeing any signs of employment softening?
Answer: There are a few cracks in the overall consumer health picture, such as delinquency rates in consumer credit cards and auto loans. Additionally, wage growth has remained high, but the number of hours worked is beginning to decline, which may suggest overall income isn’t as strong as wage growth implies. Furthermore, business hiring plans are not as robust as in previous years, and temporary hires are growing. These indicators suggest that employment demand may soften further throughout the year.
Question: Why is GDP important, and how does it affect your 401(k) or other investments?
Answer: GDP growth influences the labor market’s health. A strong economy leads to a healthy labor market, as businesses have a reason to hire and add wages. Productivity growth contributes to rising GDP and reduces the likelihood of firing employees while increasing the probability of hiring. Your job is a significant component of your life, and a healthy economy translates to better employment prospects.
In other news, Warren Buffett, the renowned investor, paid tribute to his longtime business partner and friend Charlie Munger in Berkshire Hathaway’s annual letter to shareholders. Berkshire Hathaway reported a substantial increase in fourth-quarter operating earnings, reaching $8.5 billion, and posted a net profit of $96.2 billion for the year, significantly higher than the net loss in 2022. The insurance underwriting business contributed $5.4 billion to earnings, compared to a loss of $30 million in 2022. Berkshire also bought back approximately $9.2 billion in stock during the year.
The US Supreme Court is set to make a crucial decision about Website social media integration content control, potentially transforming how Americans engage contact and access information during elections. The court will consider the states’ arguments for increased control over Website social media integration platforms and their content, butting heads with the First Amendment. This case could significantly impact how information is disseminated during the upcoming 2024 elections.
