The economic outlook for 2024

I found this to be a pretty thorough and fair outlook for 2024:

https://www.msn.com/en-us/money/markets/why-the-us-economy-is-facing-a-cycle-for-the-ages/ar-AA1lKQL4?ocid=msedgntp&cvid=00dd9c83e6a44fc7a7cfb6e1c7d9be2e&ei=146

There’s a lot discussed here so I’ll just highlight this part:

To this point, consumers haven’t slowed spending in any concerning way. Retail sales growth remains solid year-over-year, and holiday shopping has posted good results thus far. But over time, the cumulative effects of increasing costs are taking a toll and consumers are feeling the pinch.

One of the ways we can monitor how extended consumers are is by looking at how they’re paying for their spending. The story had been for a long time that pent-up savings was able to support much more spending without putting consumer balance sheets under stress. That may be true in some cases, but if there’s so much cash sloshing around, why have delinquencies started to tick up?

Another concerning piece to this puzzle is the rapid growth in revolving credit balances, which despite decelerating since 2022 is still up 9.3% y/y as of October — that’s higher growth than anything we saw during the last economic cycle. Additionally, this year has seen record use of buy now, pay later services for holiday shopping. Together, these could be signs that consumers are getting stretched, and if we need spending to hold up in order for the economy to hold up, this is a trend that deserves a watchful eye.

The bottom line is that as long as the labor market holds up, consumer spending is likely to remain healthy. Therefore, a bet on a soft landing is a bet on the consumer. And a bet on the consumer is a bet on the labor market. This is partly why so much attention has now shifted from inflation to jobs data.

Good article!
(Okay I skimmed the article I am responding here to the summary you provided)

Your summary mentions a number of “puzzle pieces” which are seemingly less-puzzling if we begin with the assumption that we are in a largely 60/40 economy.

EX:
Assume 60% are better-off and spending including on travel (recently) and dining out (still now) so much their demand drives-up prices.
Assume 40% are worse-off and cannot keep up with the higher prices, they are resorting to credit cards etc…

There are other factors to consider (good and bad) but beginning with the 60/40 assumption makes things a lot clearer.

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i would say anyone who invests in stocks are doing well

the others not as well.

Allan

dow is up 13.31% in the current year.

not a bad return.

Allan

and gold (up a healthy 10.39%) for the year.

Allan

That’s true this year.

The Fed put a ton of helicopter money into the economy during the shutdowns and is now in the process of clawing it back.

  • We’ve never had this much money on the sidelines (that’s bullish)
  • The Fed’s never clawed back money so quickly before (that’s bearish.)

Here is a two-year picture of the S&P:

It seems like the pundits on Bloomberg and CNBC are fond of discussing “the most predicted recession ever,” and “the recession that never happened,” etc…

And here is some context:

Yeah, I thought that you would like it. Pretty thorough I thought.

@biggestal99

Eddy Elfenbein has 25 years on Wall Street and runs an ultra-low fee etf (ticker CWS)

This is really key, which I’ll post again:

The bottom line is that as long as the labor market holds up, consumer spending is likely to remain healthy. Therefore, a bet on a soft landing is a bet on the consumer. And a bet on the consumer is a bet on the labor market. This is partly why so much attention has now shifted from inflation to jobs data.

That’s something that’s very difficult to predict. I believe that we will see the consumer pull back more on spending in 2024 (I plan to), but to what extent? Also regarding the labor market, will we continue to see the bigger companies cutting the good paying jobs, with the continued addition of the lower paying jobs by smaller businesses?

Roughly 30% of US households own their homes and have a mortgage.
Nearly all of them refinanced at ~3% and got, in effect, a $1,000/month raise.

Their saving rate, (deposits into banks) did not move at all. Nearly 100% of that money is being either a.) invested eg stocks and crypto, or b.) spent.

To the degree that they spend that on labor intensive things that buoys up the jobs market. (EG For a while they spent on travel, recently they’ve been spending on restaurants.)

As for unemployment, we’ve never had this much cash on the sidelines before, never anything close. So maybe this time really is different, but we know how the labor market typically behaves.

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ATT needs 62 people to fill good paying jobs (mostly in Texas).

no qualified takers. sad. nobody wants to work.

Allan

From the link in the OP:

The key component to watch in the first half of 2024 is money market balances. Investors flooded into money markets throughout 2023 to capture the 5%+ yield with little to no risk. If rates remain high, it’s unlikely that we’ll see a huge outflow, but as Fed cuts come closer into view and rates fall, investors will have to decide if the yield in cash instruments is more attractive than the capital appreciation opportunity in other assets.

I put some money to work in CD’s as well, and will keep doing so for now.

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Hopefully, those are not super-long-term CDs.

CDs and bonds function the same way. Your money, both principle and interest, are safe as long as you hold until maturity . . . but if rates happen to rise in the interim, the “penalty for early withdrawal” can be heavy.

It is a reasonably safe assumption that the first part of 2024 will look like 2023.

In 2023:

  • Total Retail sales, and Grocery Store sales were flat, (left side, black arrows)
    vs
  • Online Retail, and Food and Drinking Establishment sales which positive, and neither faster than slower than the long-established trend, (right side, green arrows)

Since Total Retail sales moved sidesways in 2023, but two categories moved upward, logically, something within the retail sector must have moved downward in 2023.

It turns out those categories are

  • Home Furnishing Stores
  • Gasoline Stations
  • Retail Building Material & Garden Supplies (teensy drop in 2023)
  • Department Stores (have been dropping for 10+ years)

For completeness: here are the four down categories:
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Apparently, the net increase in money market funds is not coming from household accounts. It is coming from banks (US and foreign), investment funds etc.

According to calculations by the the SF Fed inflation-adjusted aggregate household savings

  • are already below pre-pandemic levels for the bottom 80% of households
  • will likely become negative in total during the first half of the coming year.

(Image1 below from Bloomberg)

(Image 2 from the Fed)
image
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The 2023 economy can best be described
“Well, it went up, but only because we count ‘the economy’ as ‘spending’ regardless of whether that spending came form income or from drawing down savings or from maxing-out credit cards.”

It is definitely not sustainable.

(Above figures are from fall. I expect updated numbers in the coming weeks)

https://www.bloomberg.com/news/articles/2023-09-25/only-richest-20-of-americans-still-have-excess-pandemic-savings

Gold price increases indicate inflation and loss of spending power in the dollar.

not always true.

between 1980 and 1984 inflation averaged 6.5% per year and gold dropped an average of 10% per year.

Allan

Gold dropped because the fed pushed interest rates into the high teens, greatly strengthening the dollar in order to bring inflation under control. Gold was spiking in the beginning, then cratered after the rate hikes. Inflation then fell slowly, because the interest rates on US denominated debt drew massive foreign investment into those instruments.

Well that is (at least partially) correct.
Because gold is also used for speculation, ask a risk-hedge etc. there are periods when it rises and periods when it falls, but the overall trend is clear.


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Inflation affects all things, stocks, gold, and consumer items.
Because we measure inflation only by how it affects consumer items many people mistakenly think inflation is only about consumer items. They are wrong. That would be like saying “If you stop sneezing you no longer have pneumonia,” or “If you stop craving pickles you are no longer pregnant.”

Still when a mistaken belief becomes deeply-held, sometimes it is better to roll with it.
In that vain, I present the following: