Snapshot - Today - Tomorrow it Changes a Tad
Resilient U.S. Economy Defies Expectations: A 2023-2024 Snapshot
In 2023, the U.S. economy showcased unexpected resilience. While most economists predicted a recession due to the Federal Reserve's interest rate hikes aimed at curbing inflation, the economy defied these forecasts, growing by 3.1% and adding nearly 3 million jobs.
As 2024 unfolds, skepticism about the economy persists. Critics argue that U.S. consumers are stretched thin, with depleted pandemic savings, frustration over high prices, and rising debt burdens. Despite these concerns, the economy continues its steady progress.
In Q2 2024, the Commerce Department reported a 2.8% annual growth rate, reaching $22.9 trillion—surpassing the 2.1% expected rate and marking an improvement from Q1's 1.4% growth.
From an investment perspective, critical GDP components such as private sector investment and consumer spending remain robust. Businesses increased spending on commercial construction, equipment, and software by 5.2% annually, up from 4.4%. Notably, equipment investment surged by 11.6%, reflecting corporate confidence in economic stability.
Despite warnings about dwindling consumer savings and rising delinquencies, consumer spending rebounded in Q2, aided by moderating inflation and a resilient labor market. Rising real wages, outpacing inflation, bolstered consumer spending power.
The outlook suggests a "soft economic landing" with continued growth and moderating inflation, potentially benefiting stocks, particularly small caps. With current Fed rates between 5.25% and 5.5% and inflation at 2.5%, a future decline in interest rates could favor small-cap stocks, which appear undervalued compared to large caps.
Bottom Line for Investors
While the U.S. economy faces challenges, it continues to perform robustly, evidenced by solid GDP growth and strong stock performance. The data indicates that the economy is far from faltering, maintaining a trajectory of steady expansion despite higher interest rates.
