Remember that “upcoming recession” many pundits predicted for the US due to the Fed’s elevated interest rates? It hasn’t happened. At least, it didn’t happen in 2023, and many economists believe it won’t happen this year, either.
Indeed, more and more experts project the US will successfully implement a “soft landing” and avoid slipping into the economic doldrums. As 2024 begins, the US economy continues demonstrating its resilience, and investors and consumers have reason to feel optimistic.
Yet political controversies and violent conflicts around the world threaten to thwart growth and knock the US off balance. As Dutch Mendenhall, founder of RADD Companies, explains, “We are in a key moment of transformation. It can’t be denied that politics and geopolitics will have a significant impact on economies around the world, including ours.”
The current state of the US economy
Looking at the current state of the US economy, indicators across the board are flashing green. Perhaps most importantly, the rate of core inflation has slowed to its lowest level in years at 3.9 percent. Fed Chairman Jerome Powell states that he does not foresee the need for further interest-rate hikes.
Indeed, the Fed’s board has signaled that their target interest rate will likely drop this year. The question is simply one of timing. One reliable estimate predicts that the Fed will decrease interest rates as early as March 20, with projections to decrease rates another five times throughout 2024.
Prices are decreasing in many vital sectors, such as the gas pump. Many foodstuffs are also becoming less expensive, including eggs, lettuce, apples, and tomatoes. Airline tickets have become cheaper, as have smartphones, major appliances, and laundry machines. The price of health insurance has dropped by more than 30 percent.
Furthermore, the unemployment rate remains steady and low at 3.7 percent. This means job seekers generally have more options, and employers strive to entice staff with higher wages, flexible work, and other policies.
Meanwhile, 2023 was a banner year for the stock market, and consumer spending is up. This was particularly true over the winter holidays when Americans shelled out 3.1 percent more than the year before.
According to Mendenhall, all these positive signs mean “we can officially conclude that the US has recovered from the pandemic and entered the post-pandemic phase.”
Yet the US still faces substantial economic headwinds.
Potential headwinds for the US economy
While the American economy is better and stronger than it has been in years, many Americans still perceive it as weak. As The Hill reports, “Nearly six in 10 Americans feel like the U.S. economy is currently in a recession despite avoiding the sharp downturn widely predicted by economists last year.” A recent study has shown that much of the media’s coverage of the US economy has ignored the good news and similarly focused on the negative.
“Many Americans are feeling heightened insecurity during this transformative stage,” Mendenhall explains, adding that widespread anxieties about AI’s impact on employment and feelings of job insecurity could contribute to this phenomenon.
In addition, Mendenhall points toward declines in global trade flows. According to the United Nations Conference on Trade and Development (UNCTAD), international trade decreased in 2023, and the outlook isn’t much better for 2024. “While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt, and widespread economic fragility are anticipated to exert negative influences on global trade patterns,” the organization states.
Another challenge Mendenhall lists is supply chain logistics. For instance, Houthi rebels from Yemen have been hijacking ships in the Red Sea, stealing their cargoes, and holding their crews hostage. While a sizeable US-led coalition of allied countries has stepped up to protect these sea lanes, the Houthis have retaliated, and the violence threatens to escalate to other countries in the Middle East. Similarly, Mendenhall lists the wars in Ukraine and Gaza as destabilizing events.
Politics back home also threaten the US economy. Certain members of Congress continue to threaten to shut down the government, which has led the international financial analysts at Fitch Ratings to downgrade American debt. Meanwhile, the country has entered a Presidential election year, which promises a non-step flood of negativity and acrimony.
Implications for investors
To Mendenhall, this unique confluence of economic trends should serve as a “catalyst” for investors to vet prospective deals carefully. “Only investments strategically targeted to yield long-term growth should be considered,” he says.
In the realm of commercial real estate specifically, Mendenhall perceives opportunities in apartment buildings and some assisted living facilities, though he says that office buildings should be avoided.
Published by: Martin De Juan