Steven Rick Economist for TruStage Offers an Answer for ‘The Question on the Minds of Many Credit Union Leaders’
MADISON, Wis.–There is a “question on the mind of many credit union leaders,” according to TruStage’s chief economist, Steve Rick: “What the economic environment will look like during the next few years.”
Writing in TruStage’s newest Trends Report, Rick said that when looking in the rear-view mirror, the economy performed surprisingly well in 2023, producing 2.5% more goods and services compared to 2022, which is above the 2% long run natural growth rate.
“Growth was broad-based as consumer, residential, government and export spending reported robust growth,” observed Rick.
He noted other signs of recent economic strength include strong monthly job growth across most sectors and industries, a very low 3.7% unemployment rate, and wage and price pressures continuing to decline, and he added that as inflation rate falls throughout 2024 this should allow the Federal Reserve to begin lowering short-term interest rates sometime this summer.
“So, with this economic backdrop we are forecasting real gross domestic product to rise 1.5% in 2024, slightly below the long-run average of 2%, creating the soft-landing scenario the Federal Reserve is shooting for,” Rick stated. “So, why are we forecasting below trend growth? First and foremost, the long and variable lags of monetary policy will weigh on job gains which in turn slows economic growth. Other factors reducing economic growth include slowing inventory accumulation, a rise in the personal savings rate, some reduction in consumer spending by lower-income households who must start repaying student loans and the tightening of welfare eligibility requirements.”
Rick said that even though a recession is always a possibility, TruStage is putting its probability at 33% for 2024.
“Factors that could push us into negative growth would be a combination of significantly higher energy prices, higher long-term interest rates, and a sharp drop in commercial real estate prices leading to a banking crisis,” Rick said.