Return to lower inflation and more normal financial market conditions predicted for 2024

Price stability equals corporate and investment visibility, said Kevin Depew, RSM Deputy Chief Economist.

Depew was the keynote speaker at the Quad Cities Chamber’s Economic Forecast and provided an in-depth analysis of the national and regional economy to help QC businesses prepare for the coming year.

Depew’s presentation focused on changes in the post-pandemic U.S. economy and what to expect as inflation recedes over the coming year. He said that a return to price stability (low and stable levels of inflation) could usher in a period of policy normalization resulting in strong growth in corporate and infrastructure investment.

However, the adjustment process is not without pain. As with any large-scale economic shift, there will be winners and losers, and that affects perceptions. Depew pointed out that there is a disconnect between what people feel about the economy and what the data show. Yet the economy has weathered numerous challenges over the last two decades. “Challenges,” he said, “do not mean that the system is broken.” The economy continues to be resilient even as this adjustment takes place.

Depew also stated that while the risk of a recession has diminished over the last year, there is still about a 30% probability of recession. If a recession happens, it would probably be less like the previous two recessions (2008 and 2020) and more like some in the past that were less severe. He also pointed out the upside risks that could help avoid a recession. Growth over the past year has persistently exceeded expectations, the consumer remains resilient with as much as a $4 trillion cushion of cash, and productivity has increased in recent quarters.

He said the U.S. economy is facing the following:

Economic themes

• Economy resilient with upside
• Labor market remains tight; capital expenditure boom possible once price stability reached
• Acute inflation peaked at 9.1% (June ’22); wage growth 4-5%
• Fed at terminal rate; rate cuts begin June 2024
• Recession probability 30%

Core economic fundamentals

• 50-plus year low unemployment, strong household balance sheets
• Still adding >150k jobs per month; prime-aged employment near record high
• Steady corporate profits, low leverage
• Tighter lending conditions for middle market to persist

Consumption outlook

• There is no “The Consumer”; highly segmented, targeting bolstered by data, artificial intelligence
• US core inflation remains sticky in services 5.1%, top line all-items inflation falling markedly
• Easing inflation bolstering real wages
• Average interest rate charged on credit card near 20%

Depew concluded by reminding the audience of some of the challenges present in the economy before the pandemic such as frequent downside surprises to growth, aggregate demand shortfalls and sluggish capital investment. He thinks that in the post-pandemic economy we are less likely to deal with these issues. While we will still have challenges, he expects the economy to benefit from a return to lower inflation and more normal financial market conditions.

Learn more about economic factors impacting your business. The Real Economy Blog from RSM provides timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including The Real Economy monthly publication and the proprietary RSM US Middle Market Business Index (MMBI).

Thank you to our co-presenting sponsors IMEG Corp. and Mediacom Business; platinum sponsors NAI Ruhl Commercial Company, Rhythm City Casino Resort, RSM and TBK Bank; and gold sponsors AM General, Kimberly Car City, Quad City Bank & Trust, The Family Credit Union and Werner Restoration Services.