With a new year beckoning and mixed signals on how the economy is doing, let’s see what the data are telling us about 2024’s prospects and what that means for those holding some of the economic levers at the Federal Reserve.
At first glance, the economy is slowing but not enough to set off any recession alarms. This leaves a question: Will the loss of momentum persist throughout 2024? It helps to begin by looking at two simple things: the money supply and trends in the individual states, both of which help signal what’s coming.
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But first, let’s review some other recent data that tell us people aren’t as eager to spend, invest, or hire as we’d hope. Retail sales growth is weakening, industrial production growth was negative for September and October, manufactured goods orders are down, new home sales are falling, and given the return of some 47,000 striking workers, November’s 200,000 added jobs don’t look as impressive. Looking closer, we find falling manufacturing profits and zero growth in new business formations. Job opening growth just hit the lowest level since pandemic-limited 2021.
So some weak gross domestic product growth will come as no surprise. After reducing the supply of money since 2022, the Fed hoped to see this very result as part of its long effort to bring down inflation.
The real question is how weak for how long. Consider the relationship between the nation’s money supply and job openings. The rise and fall of money growth run about a year ahead of the job market’s similar reaction. More money circulating means more hiring, and vice versa, eventually.
As for 2024, the key is that money supply growth has been negative for almost a year. Job openings are now falling. Based on the typical lag, this important economic indicator should continue to decline for almost all of 2024.
Does this mean a recession? By official definitions, not necessarily — but don’t be surprised if economic growth is flirting with negative territory for most of the year ahead.
Nationwide growth patterns sometimes show themselves first in state data. The latest maps prepared by the Philadelphia Fed, based upon the three-month change in states’ coincident economic indicators from July to October, are far from ambiguous. From coast to coast, the hues have mostly changed from the healthier, brighter colors that signal growth to weaker colors. The Midwest is the weakest region. Texas and the South Atlantic states continue to show strength.
What’s the bottom line at this juncture? And what’s the message for the Fed?
Slow or negative growth should be with us for more than the winter. It may well be next winter before we’ve seen the last of it. Some states, because of their strength and population growth, will prosper. Others will feel what seem like local recessions. All of this, coupled with diminishing inflation, suggests it’s finally time for the Fed to take its foot off the brakes and gingerly nudge the accelerator.
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Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
