Revisiting 2024 Economic Themes At Midyear

The second half of the year is a good time to revisit themes from the beginning of 2024. Most are still relevant and interconnected.

2024 Themes And Thoughts

Consumer Spending Finally Cools — Fed data on household liquidity adjusted for cumulative inflation effects suggests consumers might have exhausted COVID stimulus surplus in 2023.

Inflation Cools But Could Be Stickier Than Expected — Cooler inflation readings in the second half of 2023 appear driven by more volatile categories that could resurface in the first quarter. Also, the rise of anti-globalism policies and reduced reliance on overseas supply chains could prove inflationary over intermediate/long term.

Monetary Policy And Rate Volatility — Markets are priced for a very dovish Fed path to begin 2024. Stickier inflation will keep the Fed on hold for longer and fuel rate volatility as the market reprices accordingly (again).

Geopolitics, Fiscal Deficits, Etc. — Multiple geopolitical conflicts and the coming U.S. elections present external risks to the economy. The worsening fiscal deficit could become a market issue in 2025.

The Operating Environment — Margin compression, rising credit costs, and reduced profitability will remain persistent challenges for banks and credit unions throughout 2024.

Where Are We Now?

The U.S. economy did not weaken to the degree that many economists had expected and that markets had priced for in the first half of 2024, but there are growing signs of cooling in the second half of the year.

Regarding the first theme, initial first quarter data suggested consumers weren’t pulling back so soon after all, despite available reporting showing the excess liquidity fueled by pandemic fiscal stimulus had largely eroded. However, subsequent data revisions suggest inflation-adjusted spending did begin to taper off beginning in February, as discussed in June’s commentary. The labor market has shown signs of cooling as well, which would be supportive of slower income growth and reduced consumption in the second half of the year.

If spending does continue to slow, overall GDP growth will follow, as should inflation.

Visit ALM First to read more about the latest economic data and monthly market trends.

Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

Not an offer for investment advisory services. This content is provided for general educational information and market commentary purposes only.