The US economy has started 2024 on a softer note than expected due to elevated inflation and interest rates. According to the Conference Board, while a recession is not forecasted for 2024, it is anticipated that consumer spending growth will further decrease, and overall GDP growth will slow to under 1% from the second to third quarter of 2024. Inflation is projected to gradually return to the Fed’s 2-percent target in 2025 as quarterly annualized GDP growth moves closer to its potential of around 2%. Interest rates are expected to decline in late 2024 but may stabilize at levels higher than the pre-pandemic average.
However, in 2023, US consumer spending remained strong despite various challenges. But this trend has begun to weaken. Real retail sales growth is declining and consumer confidence has been decreasing for several months. Growth in real disposable personal income is also slowing down, pandemic savings are running low, and household debt is increasing rapidly. With consumers spending more of their income to pay off debt and with rising delinquencies in auto loans and credit cards, it is predicted that overall consumer spending growth will continue to slow in the second and third quarters of 2024 as households struggle to find a new balance between income, debt, savings, and spending. Labor market conditions are also expected to impact consumer spending trends.
