What? No recession in 2024?
According to the Conference Board Leading Economic Index (LEI), that appears to be the direction the U.S. economy is headed, despite a decline in January. The Conference Board concluded that since six out of 10 components contributed positively last month, a recession is unlikely.
The LEI fell by 0.4 percent last month to 102.7, following a 0.2 percent slip in December 2023. Over a six-month period between July 2023 and January 2024, the LEI contracted by 3 percent, representing a smaller decrease than the 4.1 percent decline over the prior six months. The LEI provides an early indication of different turns in the business cycle, and can indicate where the economy is headed in the near term.
Related Stories
“While the declining LEI continues to signal headwinds to economic activity, for the first time in the past two years, six out of its 10 components were positive contributors over the past six-month period (ending in January 2024),” Justyna Zabinska-La Monica, the Conference Board’s senior manager for business cycle indicators, said. “As a result, the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”
“The economy may not be headed for imminent recession, but it is losing momentum,” economists at Wells Fargo—Tim Quinlan and Nicole Cervi—concluded in a research note.
January’s decline marked 23 months of a recession warning that hasn’t materialized, and they think the data shows economic activity is just “plodding forward into 2024 after sprinting for the better part of 2023.” They noted that retail sales and manufacturing production were weaker than expected in January, while inflation was stronger than expected.
“The combination of slowing output and persistent price growth adds credence to a ‘higher for longer’ interest rate environment,” they concluded.
Meanwhile, consumer discretionary spending has provided resilience to the U.S. economy. R.J. Hottovy, head of analytical research at Placer.ai, said in a Coresight Research webinar on Tuesday that 2023 spending trends has shown a “different story” than the conversations a year ago about a recession and consumers focusing on value, trading down, and trading out.
He noted that visitation trends centered on events, such as Valentine’s Day and Mother’s Day. That was the same during the holidays where apparel shopping centered around big events, such as Black Friday.
“I think we underestimated that people still were willing to spend around these events,” Hottovy said, adding that there was a focus on value that continued throughout the year. He said that event shopping has become a bigger piece of the shopping pie. It’s a pattern that he thinks is “going to continue in 2024.” But for how long remains the question.
“Do we still have enough discretionary spending? Is there enough disposable income to really drive and keep us out of a recession? That’s the big unknown at this point,” Hottovy said.
Hottovy observed that traffic patterns tend to be deal-driven, and that consumers are looking beyond the overall discount to the per-unit cost of an item for packaged goods. That has lower-income consumers trading down from Walmart and Target to the dollar stores and other retailers. And he said that migration patterns indicate where population growths are centered, such as areas like Arizona, Texas, central Florida and the Carolinas. Keeping track of migration could be a resource on where retail growth areas.
He also said developers are changing the tenant mix at shopping malls, adding more residential units and other commercial businesses so the mall becomes more mixed use than just retail space. Two examples were in Cary, N.C. and Phoenix, Ariz., where visitation frequency is a “lot higher” than nearby properties.
“Shopping malls and kind of the way we interact with them is completely changed,” he said, adding that early adopters to the new trend could see benefits down the road. He explained that the new mixed use centers created with a brand strategy focused on events or some community are the ones that have seen the most success.
Separately, Deloitte conducted a ConsumerSignals study that found 7 out of 10 Americans are still concerned about rising prices for everyday purchases, down only slightly from Summer 2022 when inflation peaked at 9.1 percent. The peek into consumers’ financial well-being and spending intentions indicate that they haven’t yet fully recovered to pre-inflation levels. That suggests “stagnating financial well-being,” the financial services and advisory firm said.
Financial well-being sentiment has plateaued in the U.S. since early 2023, impacted by persisting inflation, Deloitte said. The firm also noted that credit card debt is on the rise in the U.S., and remains a metric to watch. Currently, the number of Americans concerned about their credit card debt hit 3 in 10 at the end of 2023, up from 2 in 10 a year ago.
“Despite low unemployment, GDP growth, and solid retail sales numbers, financial and geopolitical anxiety weigh heavily on the U.S. consumer’s psyche,” Stephen Rogers, Deloitte Services’ managing director at the Deloitte Consumer Industry Center, said. Because consumers indicate an intention to pull back on nondiscretionary items, Rogers said business leaders must adapt and “adjust their strategies to rekindle proftability, loyalty and volumes.”
