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Despite cautious optimism from the Federal Reserve in December, not everyone is convinced that the U.S. economy will avoid a recession in 2024. Small business owners are particularly concerned about the coming year, according to the U.S. Chamber of Commerce’s Small Business Index report for the fourth quarter. Economists and experts have expressed mixed opinions, with some predicting a spring or summer recession and others hoping to escape it altogether.
Will Economic Pressure Spark a Recession?
While the end of 2023 has seen easing inflation, there are still risks for the year ahead. The successive interest rate hikes taken by the Federal Reserve since March 2022 have created a difficult environment for consumers and businesses. Even while these initiatives have helped to moderate inflation and avoided a recession this year, the economy may still face challenges.
Fed officials recently predicted that GDP will expand by just 1.4% next year and 1.8% in 2025.
Concerns about a recession in 2024 have been raised by several top economists. Allianz Chief Economic Adviser Mohamed El-Erian predicts a downturn, propelled by the combination of high interest and mortgage rates with ongoing inflation. "For well over a year now, I have argued that the U.S. could avoid the 2023 recession that many were repeatedly calling for. I am now less confident about what's in store for 2024, given how the surge in rates compounds the erosion in financial, human, and institutional resilience," El-Erian said in an article for the Financial Times.
Another negative forecast comes from UBS, a prominent European bank. They predict a “U.S. recession in Q2 to Q3 of 2024,” which will prompt a “pronounced Fed easing cycle seen unfolding from March 2024 onwards,” as stated in a research note published by economist Arend Kapteyn and strategist Bhanu Baweja.
Several experts echo a negative outlook on the U.S. economy. In an interview with Bloomberg, billionaire investor Ken Griffin predicted, “Q2 right now is roughly the center point of our distribution as to when we're likely to see the United States in a recessionary environment.” He anticipates a recession due to high-interest rates and emphasizes the need for the federal government to reduce deficit spending.
Marc Lasry, CEO of Avenue Capital Group, shares a similar sentiment, expressing concerns about high-interest rates causing issues for consumers and businesses. “To buy a house, it costs you twice as much as it did a year ago because rates have doubled in a year," he commented. "So people can't afford that, and it's causing some problems, and that's sort of why you'll have a recession, whether it's a year from now or not.”
Experts Remain Divided
The lack of consensus from experts has contributed to a growing sense of uncertainty about the economic outlook for the U.S. in 2024. Yet, there are plenty of economists who remain optimistic about the future.
Positive economic data over the past few months has bolstered this sentiment. Treasury Secretary Janet Yellen noted that there are currently no signs of a recession. According to Yellen, the U.S. is experiencing a “soft landing,” a situation where the economy successfully fights inflation without succumbing to a recession.
Experts like Bill Adams from Comerica Bank, Atlanta Federal Reserve President Raphael Bostic, and Bank of America CEO Brian Moynihan foresee a slowdown in the economy in 2024 but do not anticipate a full-fledged recession. Moynihan emphasizes strong consumer finances and spending as reasons for optimism, according to a report by Reuters.
Goldman Sachs recently predicted a low 15% probability of a recession heading into the next year, attributing this to positive global economic performance and expectations for continued inflation decline in 2024. This positive sentiment is further supported by the expansion of the U.S. GDP by 4.9% in the third quarter, marking the highest growth rate in two years.
Predictions for Small Businesses
While economists debate the form that an economic slowdown will take in 2024, small businesses are busy preparing for a difficult year. Tom Sullivan, the U.S. Chamber of Commerce vice president of small business policy, explained that “small business owners are wary of the future and continue to have an overall negative impression about the national economy, with inflation still outpacing revenue expectations.”
According to recent surveys, small company confidence in the economy has decreased in the fourth quarter due to ongoing price pressures. The U.S. Chamber of Commerce found that only 25% of small businesses feel positive about the U.S. economy, with more than half citing inflation as one of their top challenges.
Another difficulty comes in the form of finding qualified employees. At least two out of every five small enterprises had trouble filling available positions this year. The National Federation of Independent Business reported that although there has been some easing in recent months, the labor market is still tight for small businesses. 93% of companies who hired new employees or were looking to fill vacancies said they saw very few qualified applicants, marking an added challenge for small businesses next year.
Conclusion
2024 is expected to bring a volatile year for the economy and plenty of risks for small businesses. While experts disagree on whether the U.S. will enter a recession, there is a consensus that the year will see slower economic growth. Small businesses facing the uncertainties of 2024 can benefit from focusing on actions that align with core goals. By adopting flexible decision-making strategies, being aware of trade-offs, and seeking opportunities with asymmetric upside, businesses can navigate the challenges and potentially emerge stronger from any economic downturn.
Sources
Federal Reserve Bank of Atlanta
National Federation of Independent Business
This article was originally published in Certainty News.
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