There will be no economic growth this year as inflation falls below 3 percent, according to a Jan. 20 report from the American Bankers Association’s Economic Advisory Committee.
The committee, which includes 15 leading economists from the largest North American banks, projected that the economy will grow by 1.6 percent by the end of 2024. Year-over-year consumer price inflation is expected to fall from 7.1 percent in December 2022 to 2.8 percent by the end of this year as consumer spending slows, oil and gasoline prices fall and supply chain shortages ease. The CPI is expected to drop even further to 2.2 percent in 2024.
The EAC expects the Federal Reserve Open Market Committee to end its tightening cycle in 2023 before starting an easing cycle late this year. A strong labor market that has already supported personal spending during the pandemic will cool recent substantial wage gains, the group predicted. Average hourly wage earning growth is expected to slow from 5.2 percent in 2022 to 4.2 percent this year before falling to 3.3 percent in 2024. Unemployment, currently at 3.5 percent, is expected to increase to 4.6 percent by the end of this year.
“Household spending is close to stalling this year,” said Simona Mocuta, committee chair, managing director and chief economist at State Street Global Advisors, Boston. “Federal stimulus payments helped consumers withstand the pandemic-driven recession and build substantial savings. But much of the excess savings has been depleted, especially for lower-income households.”
Clients reported declining sales and orders in sectors deemed sensitive to interest rates. “Firms have become cautious in restocking inventory and have cut back spending on plant and equipment,” the report stated. “Much of the current capital spending is carryover from supply chain issues and replacement of aging fleets, equipment and other assets.”