What’s Ahead for 2024’s Economy

If you know me at all, you know I track economic trends.  This year has been really unpredictable for most of us.... and the one question you ask me is:  "What are you anticipating for 2024?" Candidly, trend points are still forming and are inconsistent; we have both positive and negative indicators such that the picture is still unclear.  But I’ll tell you what I’m thinking. Brace yourselves for some data.  
 
First, let’s look at 2023 so far. The Manufacturing, Services, and Composite PMIs all have been at or below 50 all year (which, if you remember, translates to an indication of business slowing rather than growing); business confidence, too, has clocked in at similar percentage points.  The Minneapolis Fed just published a working paper on the "Global Flight to Safety, Business Cycles, and the Dollar." Global Consult just published its October 2023 Global Consumer Confidence Charts. The Minnesota Chamber Foundation publishes a very informative quarterly Economic Snapshot. This research and more, together with the intel I get from you, translates to what I’m anticipating in 2024.
 
It's been a ride this year, to be sure. For 2024, we’ve got some strong positive trends alongside notable headwinds. Overall, I feel positive about 2024. I anticipate a slow start, but I am betting on that economic “soft landing.” Keep reading if you want to dig into the details with me.
  
The trends I’m seeing and watching:

• Most central banks across the world use a 2% annual inflation rate as their target.  Inflation IS headed down, but not back to 2% yet. Inflation in the MSP region actually fell below 2% in Q2 2023.
• The Fed has raised interest rates 11 times since March of 2022; they have 2 more FOMC meetings left in 2023: late Oct and Dec.  Current indications are that we won’t see another rate hike in October at least. 
• Given geopolitical uncertainty especially with Ukraine/Russia and now Israel/Hamas, the U.S. economic resiliency is stronger by comparison – particularly as an economic safe haven - though waning consumer sentiment is cause for concern. So, this indicator, as you might imagine, could go either way.  
• 10-year treasury yields are up, perplexingly so. Fed Chair Kashkari has shared one sentiment that this may be a reflection of more optimism in the US economy over the next 5-10 years. 
• The Fed’s really esoteric research on global volatility and excess bond premium’s impact on global sentiment (I know, right?) nonetheless provides a solid proxy for measuring improved global investor sentiment. Does that impact us in MN? Yes. And, yes, this is a positive indicator! 
• The manufacturing PMI, though still cycling rather inconsistently, is doing so at increasingly higher rates every month. Beating forecasts. 
• The Minnesota Chamber of Commerce Foundation’s August 2023 report is that Minnesota’s economy remains stable and continued to grow in the first half of 2023, despite earlier predictions of a mild recession. This includes falling inflation levels alongside GDP gains and continued low unemployment rates. 
• Meanwhile, Minnesota exports rose to $6.6B in Q1 2023, an increase of 9% year-over-year. 
• Banks are having hard conversations with clients: the cost of money is proving to be really problematic for companies, large and small. This will work against us in terms of growth.
• New business starts rose in the first half of 2023, to nearly record levels. That said, as it relates to availability of capital, venture capital investments have shrunk considerably this year.
• Minnesota unemployment rate is 3.1% as of August, compared to 3% in July and 2.7% last year. This is lower than the long-term average of 4.76%. 
• Hyper locally, Saint Paul’s 2024 – particularly as it relates to real estate investment - is still very much up in the air, as November’s election results undoubtedly will set a new course with a mostly new City Council. Rent control, for sure, has shocked – if not altogether halted – real estate development since its implementation. 
• And, finally, our Chamber partners and investors are expressing a sense of steadiness for 2024. You are telling me of plans for a solid year, and some of you are implementing significant growth strategies. None of you are telling me that you are in retraction/downsizing mode. 

 
So, there you go.  Lots of data. Certainly, some personal “sense” of things. To my mind, 2023 has been the hardest year of this COVID “season.” But our economy’s resiliency has surpassed expectations, and – again – I anticipate that 2024 will be steady but slow.
 
See you in the trenches,
 
B