Economy

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Cracks are forming beneath the surface. Credit card and auto loans delinquency rates are rising. Leading labor market indicators are signaling a slowdown and consumer confidence is subdued.
Some sectors have been or are in contraction mode. Housing, manufacturing, and the transportation sectors have been anemic, if not recessionary, over the past 18 months. Job growth is concentrated in lagging sectors like government, education and healthcare.
The rising burden of interest costs is significant, with lower-income consumers showing the greatest signs of strain. Some are insulated—namely homeowners with no mortgage or a locked-in low mortgage rate—which will continue to buoy consumer demand.
Resilience is predicated on an avoidance of mass layoffs even as firms see profit margins come under pressure amid more price sensitivity of consumers, less excess savings, slowing credit growth and high (although slowing) inflation and wage growth.

Sticky inflation will continue to weigh on the Fed’s decision-making in 2024. Housing inflation should recede more meaningfully in the second half of the year, paving the way for the Fed to begin cutting rates in the fall.
The 10-year Treasury rate will be range-bound between 4% and 4.5% in 2024, and then in the 3.8% to 4.2% range thereafter.
Generally, the economy and labor markets will moderate further in the coming quarters, with real GDP and job growth slowing meaningfully for the remainder of the year. From there, as rate cuts take effect, we expect momentum to build throughout 2025. Real GDP will grow in the 1% range at the start of 2025 but will end the year in the 2.5% range—good enough for the economy to create another one million jobs.