The post-pandemic recovery is looking better this year, as higher estimates for 2024 economic growth come in.
The job market is still hot, which is why consumers keep shopping until they drop, to use a common expression for their stalwart behavior in the face of sky-high interest rates.
But there are danger signs if the Fed doesn’t begin to drop their short-term rates sooner rather than later, with just three 0.25 percent rate cuts predicted this year. This will not do much to alleviate a looming credit crunch, and effects on borrowers of the current 8.5 percent Wall Street Prime Rate.
But first the good news. The Atlanta Fed’s GDPNow estimate of first quarter GDP growth is updated regularly, and it’s improved again after some fluctuations.
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 is 2.8 percent on April 1, up from 2.3 percent on March 29. The uptick was mainly due to gains in nowcasts of first-quarter real personal consumption expenditures (PCE) growth and first-quarter real gross private domestic growth.”
The so-called Blue Chip Consensus estimate of GDP growth shaded gray in the graph that ranges from 1 to 2.5 percent has also been trending upward.
And the final reading of Q4 2023 U.S. Gross Domestic Product growth adjusted for inflation (real GDP) was raised slightly to a 3.4% annual pace, reflecting strong consumer spending.
Why the happier numbers? The US economy keeps creating more jobs, hence the large number of job vacancies in the JOLTS report. This is a gauge of the demand for labor. It changed little from January at 8.8 million job openings employers say they want to fill on the last business day of February, the U.S. Bureau of Labor Statistics reported today.
The Calculated Risk graph of the JOLTS report shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column). There were 5.8 million hires and 5.6 million separations, so the 200,000 difference approximates the net number of new jobs filled.
This will help us to estimate this Friday’s unemployment rate published by the Bureau of Labor Statistics. Since JOLTS was little changed, the unemployment report should be about the same as last Month’s 225,000 nonfarm payroll jobs increase, though the unemployment rate rose to 3.9 percent.
The University of Michigan sentiment survey also showed consumers see better days ahead.
“Expected business conditions remained substantially higher than last autumn, with short-run expectations now 63% above and long run expectations 46% above November 2023 readings. For all but one index component, readings this month were higher than all values between mid-2021 and the end of 2023.”
Now the bad news. The question is, will the Fed heed the warning of a rising unemployment rate? Fed Governors still seem convinced that the key to reaching their 2 percent inflation target rate is to cool the hot labor market. That means waiting for the unemployment rate to rise even higher than 3.9 percent, and the loss of maybe millions of jobs.
Economists are beginning to stress the urgency of future Fed rate cuts. I mentioned last week that Claudia Sahm a former Federal Reserve economist noted for creating a formula for predicting upcoming recessions, is one such calling for the Fed to cut rates sooner.
“But recessions are like snowballs, Sahm said: They start very small but can grow big enough to trigger avalanches, which can then sweep down on the economy — wiping away jobs, economic growth and income for millions of people.”
The 8.5 percent Prime Rate will eventually begin to toll on consumers pocketbooks, since most consumers rely on some form of credit. The question is not if, but when the recession bell will toll if Fed officials react too slowly to the warnings.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitteor.com/HarlanGreen
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