Anika Jindal, Wealth of Geeks
The United States economic landscape looks promising again. Unemployment holds below 4 percent. Fueled by consumer spending, the economy maintains robust growth. And while The Fed isn’t ready to reduce interest rates, persistently wobbly inflation inches closer to the 2 percent target.
Despite these positive indicators, economists are hesitant to revise their predictions of a recession by December 2024. According to Bankrate’s latest poll for the fourth quarter, the odds slightly decreased, settling at 45 percent.
“The numerous risks facing the economy and the finances of households and individuals are close to home and far away, including the uncertainties in an election year and geopolitical troubles around the globe. Through it all, Americans will need to be focused on the long term for their personal finances,” says Mark Hamrick, Senior Economic Analyst at Bankrate.
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Key insights revealed
In Bankrate’s fourth quarter poll, several insights into the U.S. economy’s future have emerged:
• Unemployment rate forecasts: Economists foresee an average unemployment rate of 4.3% by December 2024.
• Job creation predictions: The average forecast suggests the creation of 81,000 jobs per month through December 2024.
• Interest rate expectations: Most economists anticipate the Federal Reserve initiating interest rate cuts in 2024.
• Inflation projection: Economists predict inflation will return to the Federal Reserve’s 2% target by 2025.
• Recession probability: There is a 45% chance of the U.S. economy entering a recession by the end of 2024, according to economists surveyed.
• 10-year Treasury yield forecast: The average forecast for the 10-year Treasury yield by the end of December 2024 stands at 3.8%.
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Are we headed for a recession?
The poll’s findings show that the current U.S. economy defies traditional economic theories. Despite a significant decrease in inflation, which typically leads to higher unemployment rates, U.S. unemployment levels have been below 4% for nearly two years. Economists attribute this resilience to robust hiring and consumer spending driven by stable incomes, pandemic savings, and pent-up demand.
While economists acknowledge recession risks, they note that the probability of one occurring in the next 12 months remains relatively low compared to previous quarters. Still, concerns linger regarding declining personal savings rates and increasing consumer debt, potentially dampening consumer spending in 2024.
The prolonged high-interest rate period poses consumer challenges, particularly in the housing market. As mortgage rates rise, borrowers face higher monthly payments that impact purchasing power and hinder economic growth. Those with lower credit scores may need help to access credit amid elevated interest rates.
Matthew Luzzetti, Deutsche Bank’s Chief U.S. Economist, echoed these concerns. “Though the economy continues to face several headwinds – namely, still-tight credit conditions, rising consumer delinquency rates and a slowing labor market – the resilience to date points to a more benign slowdown in 2024 than we had previously projected.”
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Top strategies for recession or slowdown readiness
Experts urge individuals to fortify financial resilience ahead of economic uncertainties. Strategies to implement ahead of a potential recession include:
• Assess your financial situation: Review finances comprehensively — income, expenses, savings, and debts — to understand one’s financial position. Thorough understanding enables consumers to make informed decisions and develop a recession-ready plan.
• Build an emergency fund: Prioritize saving and build an emergency fund with enough money to cover essential expenses — housing, utilities, and groceries — for at least three to six months in case of job or income loss.
• Reduce debt: Pay down high-interest debts like credit cards and personal loans. Minimizing debt burdens can alleviate financial stress and increase flexibility. This approach lets consumers skip cash advance apps like Dave.
• Diversify income streams: Diversify income sources to mitigate income loss risks during a recession. Part-time work, freelancing, or passive income ventures can supplement primary earnings.
• Cut discretionary spending: Evaluate spending habits and make cuts to reduce nonessential expenses. This budgeting will free up funds for savings and debt repayment.
• Review investment portfolio: Ensure investment portfolios are well-diversified and aligned with long-term financial goals. Consider reallocating assets to reduce exposure to market volatility and protect against potential downturns.
• Stay informed and flexible: Stay abreast of economic trends, market developments, and policy changes that could impact financial situations. Remain adaptable and prepared to adjust strategies in response to evolving circumstances.
Overall, while the U.S. economy continues to show resilience, economists emphasize the need for cautious monitoring of key economic indicators to navigate potential challenges ahead.
Despite these positive indicators, economists are hesitant to revise their predictions of a recession by December 2024. According to Bankrate’s latest poll for the fourth quarter, the odds slightly decreased, settling at 45 percent.
“The numerous risks facing the economy and the finances of households and individuals are close to home and far away, including the uncertainties in an election year and geopolitical troubles around the globe. Through it all, Americans will need to be focused on the long term for their personal finances,” says Mark Hamrick, Senior Economic Analyst at Bankrate.
—————
Key insights revealed
In Bankrate’s fourth quarter poll, several insights into the U.S. economy’s future have emerged:
• Unemployment rate forecasts: Economists foresee an average unemployment rate of 4.3% by December 2024.
• Job creation predictions: The average forecast suggests the creation of 81,000 jobs per month through December 2024.
• Interest rate expectations: Most economists anticipate the Federal Reserve initiating interest rate cuts in 2024.
• Inflation projection: Economists predict inflation will return to the Federal Reserve’s 2% target by 2025.
• Recession probability: There is a 45% chance of the U.S. economy entering a recession by the end of 2024, according to economists surveyed.
• 10-year Treasury yield forecast: The average forecast for the 10-year Treasury yield by the end of December 2024 stands at 3.8%.
—————
Are we headed for a recession?
The poll’s findings show that the current U.S. economy defies traditional economic theories. Despite a significant decrease in inflation, which typically leads to higher unemployment rates, U.S. unemployment levels have been below 4% for nearly two years. Economists attribute this resilience to robust hiring and consumer spending driven by stable incomes, pandemic savings, and pent-up demand.
While economists acknowledge recession risks, they note that the probability of one occurring in the next 12 months remains relatively low compared to previous quarters. Still, concerns linger regarding declining personal savings rates and increasing consumer debt, potentially dampening consumer spending in 2024.
The prolonged high-interest rate period poses consumer challenges, particularly in the housing market. As mortgage rates rise, borrowers face higher monthly payments that impact purchasing power and hinder economic growth. Those with lower credit scores may need help to access credit amid elevated interest rates.
Matthew Luzzetti, Deutsche Bank’s Chief U.S. Economist, echoed these concerns. “Though the economy continues to face several headwinds – namely, still-tight credit conditions, rising consumer delinquency rates and a slowing labor market – the resilience to date points to a more benign slowdown in 2024 than we had previously projected.”
—————
Top strategies for recession or slowdown readiness
Experts urge individuals to fortify financial resilience ahead of economic uncertainties. Strategies to implement ahead of a potential recession include:
• Assess your financial situation: Review finances comprehensively — income, expenses, savings, and debts — to understand one’s financial position. Thorough understanding enables consumers to make informed decisions and develop a recession-ready plan.
• Build an emergency fund: Prioritize saving and build an emergency fund with enough money to cover essential expenses — housing, utilities, and groceries — for at least three to six months in case of job or income loss.
• Reduce debt: Pay down high-interest debts like credit cards and personal loans. Minimizing debt burdens can alleviate financial stress and increase flexibility. This approach lets consumers skip cash advance apps like Dave.
• Diversify income streams: Diversify income sources to mitigate income loss risks during a recession. Part-time work, freelancing, or passive income ventures can supplement primary earnings.
• Cut discretionary spending: Evaluate spending habits and make cuts to reduce nonessential expenses. This budgeting will free up funds for savings and debt repayment.
• Review investment portfolio: Ensure investment portfolios are well-diversified and aligned with long-term financial goals. Consider reallocating assets to reduce exposure to market volatility and protect against potential downturns.
• Stay informed and flexible: Stay abreast of economic trends, market developments, and policy changes that could impact financial situations. Remain adaptable and prepared to adjust strategies in response to evolving circumstances.
Overall, while the U.S. economy continues to show resilience, economists emphasize the need for cautious monitoring of key economic indicators to navigate potential challenges ahead.
