Page 3 - NTDA Market Outlook Q1 2024

Q1, 2024
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Economic Overview

Mixed Messages, Chances of a Recession, Inflation Trends, Commodity

Prices…Continued from Page 1

Among the major components of GDP, consumer spending is likely to
rise at a more muted pace next year, while fiscal spending could swing
from a positive contributor in 2023 to a modest drag. Notable drops in
business investment and housing activity in 2023 set the foundation
for improved performance in 2024, even if the outlook remains muted
amid higher interest rates; 2023 strength in services sector is likely to
soften,” J.P. Morgan reported.

Whether we are in an economic recession is questionable because
there have been mixed messages. Economists predicted 1% growth
gross domestic product growth (GPD) in Q1 2024 and a recession in Q2
(-0.7%) and Q3 (-0.4%). In 2023, GDP growth was 2.3% Q1, 2.1% in Q2,
4.9% in Q3, and 3.3% in Q4.

The U.S. economy continues to defy predictions quarter after quarter
per Armada Intelligence.
Are we in a Recession?
Technically, the U.S. is not in a recession as of Q1 2024. However, there “In sector after sector the data has shown growth that far exceeds the
are still concerns as there are factors that could affect economic drivers. 20-year trend line. This has been especially prominent in the retail sector
as well as non-residential construction. The Armada Watch has shown
Economic growth is projected to slow in 2024 amid increased almost exponential growth and that is critical as far as the economy’s
unemployment and lower inflation. The Congressional Budget Office motivators. The four drivers of economic growth in 2023 were: 1)
(CBO) expects the Federal Reserve to respond by reducing interest consumer spending, 2) nonresidential construction, 3) government
rates, starting in the middle of the year. In CBO’s projections, economic spending on infrastructure, and 4) inventory build. Only the spending
growth rebounds in 2025 and then moderates in later years. on inventory has slowed, the other three are barreling along.”
In January 2024, Russell Investments reported, “We believe that the Armada Watch data has been consistently in the 96% accuracy range.
painless labor market rebalancing, disinflation, and Fed pivot make it
more likely the U.S. economy will avoid recession in 2024. In light of Employment
this, we have lowered our U.S. recession probability from 55% to 45%.” According to non-farm payroll data, 353,000 new jobs were added
in January, far surpassing the expected increase of 185,000. Again, a
However, David Rosenberg, President of Rosenberg Research, suggests mixed message vs. predictions. January’s unemployment rate stayed
that there is an 85% probability of the U.S. economy entering a recession unchanged at 3.7%, as did the labor force participation rate at 62.5%.
in 2024. He maintains the view that although the recession has been The U.S. unemployment rate has now come in at 3.7% for three
postponed, it remains highly likely. consecutive months.

Manufacturing Recession? Consumers and Inflation
According to Deloitte’s Energy & Industrial forecast, significant The U.S. inflation rate for January increased slightly to start the year, to
investment and growth in the U.S. manufacturing industry is expected 3.09%. Inflation has hovered in the 3% range since July, though it just
to continue in 2024. logged its lowest year over year (YoY) level since then. Core Inflation
decreased slightly to 3.86% in January, nonetheless logging its 10th
Long-term Inverted Yield Curve consecutive monthly decline. The monthly U.S. Consumer Price Index
According to the current yield spread, the yield curve is inverted. (In fact, rose 0.3% in January, and monthly U.S. Personal Spending inched up
it is the longest stretch of inversion since the measurement has been 0.2%. The Federal Reserve held its key Fed Funds Rate at 5.50% at its
taken.) This may indicate economic recession. As of March 20, 2024, the Jan. 31, 2024 meeting, marking the Fed’s fourth consecutive meeting in
yield on the three-month Treasury bill was 5.47%. By comparison, the which rates were left unchanged.
yield was 4.27% for the 10-year U.S. Treasury note, a 1.20% spread.
Sticky inflation refers to a phenomenon where prices do not adjust
GDP quickly to changes in supply and demand, leading to persistent
inflation.
J.P. Morgan predicts economic growth is likely to decelerate in 2024 as
the effects of monetary policy take a broader toll and post-pandemic The Bank for International Settlements (BIS) has issued a report to
tailwinds fade. which the world’s central banks are paying close attention. The mission
of the BIS is to support central banks’ pursuit of monetary and financial
“We expect real GDP growth to walk the line between a slight stability through international cooperation, and to act as a bank for
expansion and contraction for much of next year, also known as a soft central banks. According to BIS, service sector inflation runs about 1.0%
landing. After tracking to a better-than-expected 2.8% real GDP growth higher than core inflation and has for decades.
in 2023, we forecast a below-trend 0.7% pace of expansion in 2024.
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