The economy appears to be on track to achieve similar results next year, and that could be good or bad depending on your perspective.
Inflation could weaken further, interest rates could fall, unemployment could rise but not to alarming levels, and the economy could avoid recession again, speakers said at a forecast dinner Wednesday hosted by Arizona State University and the PNC Bank was organized.
But while these and other key indicators show neutral to positive signs, many Americans remain gloomy.
“We're in a strange situation,” said Augustine “Gus” Faucher, chief economist at PNC Financial Services. “People are afraid, but the economy is objectively in good shape.”
Dennis Hoffman, an economics professor at ASU, agreed. He cited a “strange brew” of “really good economic news” mixed with gloomy responses from opinion polls.
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In one reading he cited from a September Harris poll, 51% of respondents incorrectly said they believed unemployment was near a 50-year peak, leading Hoffman to question whether they had misunderstood the question.
With a current unemployment rate of 4.2% and 512,000 jobs created in Arizona since April 2020, the state's employment situation is “incredibly strong,” he said.
Overall, consumer finances remain solid, he added, as households pay relatively little to repay debt. The number of bankruptcies and foreclosures is also still at moderate levels, although these could increase if the economy enters a difficult phase for an extended period of time.
Hoffman said certain groups of Arizonans have clearly suffered from the combination of rising interest rates, increased inflation, high housing costs and other stresses in recent years.
These groups include renters, commuters, young families struggling to buy a home or afford child care, seniors who lack sufficient long-term savings, and workers without good jobs who face high student loan repayments .
But many other consumers have enjoyed a steady increase in their net worth and favorable employment prospects in recent years, Hoffman added, and Faucher said optimism among small business owners is at its highest level since PNC began surveying this group nearly 20 years ago started.
Additionally, national employment has increased by nearly 5 million jobs since before the pandemic.
“Not only employment, but also broader indicators of the US economy” are favorable, Faucher added.
Will Arizona be hit by a recession in 2024?
Hoffman said he remains optimistic for both the nation and Arizona next year. For example, he projects the state will see job growth of 1.9% in 2024, not much different than the expected 2% gain this year.
According to his forecast, Arizona's population growth could be about the same in both years, at 1.4%, while personal income is expected to rise about 4.5% in 2024, compared to an estimated 5.8% this year.
Faucher assumes that there will be a slight recession by around the middle of next year, also due to the recent sharp rise in interest rates. The yield curve remains inverted—that is, short-term bond yields exceed long-term bond yields. This is an unusual event that has signaled economic downturns in the past.
However, Faucher predicted that any recession would be mild and have little impact on unemployment, in part because consumer spending has proven resilient and employers may be reluctant to lay off workers given the tight labor market. An economic slowdown is also not certain, especially given a strong 5.2% increase in US gross domestic product in the third quarter.
“There’s still a 40% to 45% chance that we can get through without a recession,” Faucher said.
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