International Trade

Forecast 2024: Navigating a tricky economic terrain

Fasten your seat belts and enjoy the ride. Like airline travelers bracing for expected turbulence, business owners are preparing for a tricky operating environment in 2024. On the upside, the economy will continue to grow, although at a slower pace. Consumers and businesses are both feeling fairly optimistic, unemployment remains low, capital investments are plugging along at a healthy pace, and the all-important housing market is burgeoning.

Throwing cold water on the good times, though, is a significant downer that no one can control: Higher interest rates established by the Federal Reserve to control inflation are putting a damper on business activity. Economists are taking note by lowering expectations for the next 12 months.

“We expect real GDP to grow 1.4% in 2024,” said Bernard Yaros, Jr., Assistant Director and Economist at Moody’s Analytics ( That’s slower than the 2.1% increase expected when 2023 numbers are finally tallied, and below the 2.0%-3.0% considered emblematic of normal business growth. (Gross Domestic Product, the total value of the nation’s goods and services, is the most commonly accepted measurement of economic growth. “Real” GDP adjusts for inflation.)

Slowing commercial activity will affect the bottom line. Moody’s Analytics expects a decline of 4.5% in corporate profits for 2023 and forecasts only a modest recovery of 0.3% in 2024.

Battling inflation

Reports from the field confirm the economists’ readings. “Our members are experiencing a business slowdown, due largely to the effect of increasing interest rates,” said Tom Palisin, Executive Director of The Manufacturers' Association, a York, Pa., — based regional employers' group with more than 370 member companies ( While businesses understand the need for higher interest rates, they nevertheless hope for early relief. “If inflation does not continue to drop, interest rates will have to be increased further, which will be a big problem,” said Palisin.

So, are the Federal Reserve’s efforts paying off? There’s some good news here, as well as a sunny forecast. Moody’s Analytics expects year-over-year consumer price inflation to average 3.2% when 2023 numbers are all in, down from over 6% a year earlier. Moreover, the number should continue to drop until it reaches the Fed’s target rate of 2% late in 2024. (These figures represent the “core personal consumption expenditure deflator (PCED),” which strips out food and energy prices and is the Federal Reserve’s preferred measure of inflation).

Indeed, Moody’s Analytics believes the Fed will start to lower interest rates around June of 2024, although more slowly than previously anticipated because of persistent inflation and ongoing labor market tightness. Cuts of about 25 basis points per quarter are expected over the next few years until the Federal Funds Rate reaches 2.75% by the fourth quarter of 2026 and 2.5% in 2027.

Feeling good

The public mood is a strong driver of the economy. And here the news is good. “Consumer confidence has been trending higher, and I think prospects are good for it to improve next year,” said Scott Hoyt, Senior Director of Consumer Economics for Moody’s Analytics ( “Things should normalize as the economy continues to grow and gas prices stabilize.”

Given the generally upbeat consumer sentiment, prospects are good for the housing sector, an important driver of the overall economy. “New home sales are running at the top end of the range set in the decade preceding the pandemic,” said Yaros. “One reason is that a lack of existing inventory is pushing buyers to consider new homes. The construction industry is stepping in to close the gap, and housing starts have exceeded expectations.”

One major driver of consumer confidence is a healthy job market. “The unemployment rate has been very low, bouncing around between 3.5% and 3.8% for some time,” said Hoyt. A slowdown in job growth orchestrated by the Federal Reserve’s interest rate hikes should moderate things. “We think unemployment will trend upward a bit, ending 2023 around 3.9% and 2024 around 4.2%.” (Many economists peg an unemployment rate of 3.5% to 4.5% as the “sweet spot” that balances the risks of wage escalation and economic recession.)

Low unemployment may fuel happy sentiments among citizens, but it presents employers with two practical challenges. The first is a scarcity of sufficient workers—particularly of the skilled variety. The second is the need to raise wages to attract sufficient workers. “Wage and salary income growth has been strong, fueled by a tight labor market,” said Hoyt. “We're expecting it to increase just a shade over 5% both for 2023 and 2024.” In 2022 the growth was a little over 8%.

Reinforcing the estimates of the economists, Palisin said his members have had to hike their compensation to remain competitive among themselves and other economic sectors. The group’s entry level hourly wages increased an eye-popping 8% to 10% in both 2022 and 2023, far higher than the historic average of 2.5% to 3.0%.

Keeping watch

In the opening months of 2024, economists are advising businesses to keep an eye on some key statistics to get an idea of how the year will turn out. Among them:

  • Inflation. “If progress in core disinflation stalls out, that would likely mean the Fed will keep interest rates at their current level for longer than we are currently assuming,” said Yaros.
  • Employment. “Total employment in the country is a good measure of current conditions,” said Bill Conerly, Principal of his own consulting firm in Lake Oswego, Oregon ( “And any increase in initial claims for unemployment insurance could foreshadow a slowdown.”
  • The yield curve. “A reversion in which short term interest rates exceed long term ones could foreshadow a coming economic slowdown,” said Conerly.

Whatever the condition of the tea leaves, businesses in general will encounter a tougher operating environment in 2024, characterized by a need to finesse a tight labor market and reluctant lenders. “In the coming year we will face uncertainty about inflation and interest rates, shortages of labor, higher energy costs, a slowdown in China’s economy, and recurring threats of a federal government shutdown,” said Palisin. “There are a lot of spinning plates in the air, and some of them may fall and crack.”

Prepare for a Soft Landing

U.S. Gross Domestic Product (GDP) Annual % Change


Economists predict slowing growth for 2024.
Sources: World Bank; * = projections by Moody’s Analytics.

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