US Economic Growth 2024: US GDP Growth Forecasts for 2024

Future of the US Economy with Forecasted GDP Growth Rate 2024

The steady condition of the U.S. economy during COVID-19 was based on several factors. These include rapid vaccination distribution, massive economic stimulus, and strong consumer and business expenditures. GDP, the most comprehensive metric of economic productivity, grew 2.5% in 2023. Compared to the expected recession, this was impressive.

But what about 2024? Will the U.S. economy go against all odds and lead to healthy growth? Will it succumb to inflation, supply chain interruptions, labour shortages, and policy uncertainty? This blog will cover the present situation and 2024 US GDP growth predictions.

Key Highlights

  • The GDP growth of slightly less than 2% is a tepid result. Still, it would be close to the reasonable 2% average during the decade prior to the pandemic.

  • Typically, a sharp decline in inflation requires significantly slower economic growth as softer consumer and business demand forces firms to cut prices and workers to lower raises.

  • A stock market already riding high on a better inflation outlook jumped even higher after the Fed's pivot.

The Latest Situation in the U.S. Economy

The U.S. economy ended on a high note in 2023, as the Bureau of Economic Analysis's advance estimate suggested an annualized growth rate of at least 3.3% for Q4. This was below the blistering 4.9% rate of production witnessed in Q3 but still significantly above experts' predictions of a mere 1.5%.

1- Consumer Spending

Consumer spending, business investment, government outlays, exports and housing conditions contributed to the broad-based growth of the fourth quarter. High savings, increasing income and pent-up demand can support an increase in consumer spending, contributing to almost two-thirds of the U.S. economy at a healthy 2.8% rate. The Wolters Kluwer survey projects consumer spending to increase by 1.4% in 2024 after a growth of 2.2% last year. It is expected to increase by a more robust 2%.

2- Business Spending

Business spending grew to 1.9%, representing the rebound in intellectual property products, structures, and equipment. The high interest rates that will impact business capital spending in the first half of 2024 may see a rebound later in the year if Fed rates fall. Businesses will generally spend on machinery and construction as long as consumers purchase their goods and services.

3- Government Spending

Government spending also grew, driven by non-defense spending at the federal level and investment in structures at the state and local levels. The exports increased, driven by the import of goods and services, while the imports slowed down. The Biden administration's main measures to promote computer chips, renewable energy, and infrastructure have pumped billions into the economy. However, Congress' November deal to avert a government shutdown may result in 2024 budget cuts. After rising 4.8% last year, non-defense spending is expected to fall 4%.

4- Housing

The condition of the houses became better as new residential structures rose, partially compensating for the decrease in brokers' commissions. The weak single-family housing starts that were recorded last year were primarily attributed to mortgage rates that neared 8%

However, rates dropped below 7%. Present homeowners will only want to sell their homes if they have to acquire replacement housing at loan rates several times higher than existing rates. 

Thus, there is a tremendous demand for new dwellings. According to PNC Financial Services Group chief economist Gus Faucher, in 2024, housing is expected to boost economic growth after hindering it last year.

5- The Service Sector

They embraced the new 'normality' by lifting COVID-19 lockdowns and opening up more services sector spaces, spurring growth in both national economies. For instance, the unemployment rate in December stood at 3.9 per cent; this was a decrease as it marked the lowest percentage since February last year. This is beneficial for improving the job market.

6- The Stock Market 

The stock market broke all-time records thanks to investors' satisfaction with market performance, monetary policy flexibility, and government support. CPI jumped by 6.8% in November, the highest level since October 1982, but rose to 5.4% in December from a year ago.

The Overall Forecast

The weakening of fiscal stimulus, tightening monetary policy, and supply-demand mismatches are forecasted to slow down US GDP growth in 2024 after such a rapid pace as seen in 2023. Recent estimates by the World Bank, Federal Reserve, and IMF predict that the US GDP will slow to 1.8% in 2024 from 0.7% growth in 2023.

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Key Factors That May Affect US GDP Growth Rate in 2024:

Explore the factors that might impact the US GDP growth rate in 2024. Find out what could influence the growth of the US Economy in 2024.

Inflation: 

High inflation may lower real income and demand, lowering purchasing power. High inflation is expected in 2024 due to tight supply chains, a labour shortage, rising energy costs, and low demand, which keep prices high. The experts predict that CPI will increase by 3.1% in 2024, which is higher than The Federal Reserve's target rate of around 2%.

The Monetary Policy:

The Fed plans to increase interest rates in March 2024 after its bond-purchase program to fight inflation and slow the economy. The consensus Federal Reserve prediction is three rate hikes by 2024. This will increase the federal funds rate from 0.25% to 0.9% by year's end. For individuals and corporations, high rates will have negative effects on borrowing, spending, investing, and the stock market.

Fiscal Policy: 

The American Rescue Plan Act and the bipartisan infrastructure plan would gradually decrease US GDP growth in 2023, thus making them part of the fiscal stimulus package withdrawal from 2024. The moderate Republicans and Democrats in Congress oppose the social spending and environment package of the $1.75 trillion Build Back Better Act. Thus, the future of this law is dubious. Fiscal policies might tighten. The budget deficit and public debt peaked in 2023; therefore, the government must raise taxes or cut spending.

Uncertain Demand and Supply:

COVID-19 and geopolitical problems that make exporting products difficult might still hurt the U.S. economy in 2024. If this happens, labour, energy, materials, and commodity shortages might hurt the U.S. economy by raising prices, lowering output, and lowering quality. As individuals release unsatisfied wants, leisure, healthcare, and travel may increase in the U.S. There would be less satisfaction, more costs, and longer waits.

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Conclusion

The United States economy managed the 2023 COVID-19 pandemic well. In light of these circumstances, the latest predictions indicate that by 2023, the U.S. GDP will have risen by 2.5%. 

The U.S. economy will likely slow down significantly in 2024 due to supply and demand mismatches, tight monetary policies, and the elimination of stimulus. 

The US GDP is projected to increase by 1.3% in 2024, as opposed to the 2.6% growth rate of 2023. Fiscal policy factors, inflation, and the supply-demand gap may negatively impact economic growth in America in 2024.

FAQs

At what percentage will the US GDP growth rate stand in 2024?

Analyzing the last quarters of 2023 and 2024, in particular, one may anticipate an improvement in US GDP. The informed individuals who provided the necessary information to conduct this analysis came from the owned Federal Reserve Bank of Philadelphia in 2024, and they predicted a growth rate in gross domestic product that amounts to 1.3%. The U.S. is projected to record a GDP of 1.3% from Q4 in 2023 to Q4 in 2024.

Which factors drive US GDP growth?

Net exports, consumer, business, government expenditure interest rates, inflation, fiscal policy, money policies, and Supply and demand affect U.S. GDP growth. These factors' magnitudes, directions, and timeliness can affect U.S. GDP growth. Increasing consumer spending increases the US GDP by creating a higher demand for goods and services. Because inflation affects people's and businesses' purchasing power, real income and expenditure are also reduced, which might be detrimental to the development of the US GDP.

Will the Fed lower rates in 2024?

Several changes in recent weeks have improved hopes. The Fed presumably will stop rising rates and projected three rate cuts in 2024 to lower consumer and business borrowing costs. The inflation rate has dropped more markedly than anticipated, justifying the Fed's turnaround. The stock market, which was already rising due to the bettered inflation picture, skyrocketed after the Fed's pivot.

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Douglas Walltrip 31 Jan, 2024

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