Review of the 2024 U.S. Economy: Cooling Job Market, but Strong Consumer Spending Supports "Soft Landing" Logic

In the past few years, although the growth rate of the U.S. economy has slowed down, it has surprisingly maintained an "unexpected growth model," and 2024 is no exception. Despite the long-term high borrowing costs in the U.S. suppressing the development of housing and manufacturing, leading to a slowdown in hiring activities, the U.S. economy, buoyed by strong consumer spending data, is infinitely close to the "soft landing" that Federal Reserve officials have been longing for.

Despite uncertainties surrounding the presidential election and persistently high U.S. benchmark interest rates, along with significant signs of cooling in the labor market, the U.S. economy's growth rate remains strong this year, exceeding all economists' forecasts for the U.S. economy at the end of 2023. According to the International Monetary Fund (IMF), the U.S. is expected to be the best-performing developed country in the Group of Seven (G7) in 2024.

The U.S. economy is expected to significantly outperform other wealthy countries in 2024—according to IMF forecasts, the U.S. economy will perform better than other G7 members.

However, even as the U.S. economy approaches a "soft landing," the economic situation is far from perfect. It has proven that the rate of inflation decline is slow, leading the Federal Reserve to adopt a "higher for longer" hawkish monetary policy. Under the heavy pressure of high borrowing costs, the U.S. housing and manufacturing sectors continue to struggle, and cracks are appearing in the once-booming job market since the pandemic, with rising default rates among consumers burdened with credit card debt, mortgages, and other loans.

Here is a detailed review of the U.S. economy's performance this year:

Consumer spending is remarkably "resilient."

The U.S. economy's performance in 2024 exceeded economists' expectations, and the answer lies in the strong American consumer. Although hiring in the labor market has slowed, U.S. wage growth continues to outpace inflation, and household wealth has reached new records alongside the soaring U.S. stock market, supporting the sustained strong expansion of household spending.

U.S. household demand remains strong this year—consumers' spending on goods and services remains stable.

Bloomberg Economics' forecast data indicates that U.S. household spending is expected to grow by 2.8% for the entire year of 2024—faster than in 2023, nearly double the general expectations of economists at the beginning of the year.

However, cracks are appearing regarding consumer spending. Although consumers remain resilient, part of the significant resilience this year has shown signs of weakening. Some Americans, including a portion of high-income groups, have exhausted all their cash savings accumulated during the COVID-19 pandemic, and they typically save a small portion of their income each month—a habit that has not been seen in the U.S. for a long time

Consumers of Different Income Levels Gradually Move Away - Retail Spending Growth by Household Income

According to a statistical report released by the National Retail Federation (NRF), total consumer spending during the period from November 1 to December 31 this year is expected to reach a record between $979.5 billion and $989 billion, indicating that consumer spending in the U.S. during this holiday shopping season is likely to continue to set historical highs.

Additionally, according to revised U.S. government statistics released in September this year, the rebound of the U.S. economy from the short-term recession caused by the COVID-19 pandemic has been much stronger than economists had expected and the data previously released by the U.S. government, primarily driven by a larger scale of consumer spending growth propelled by U.S. consumers in 2022 and 2023. These revised data have fundamentally changed many economists' perceptions of the U.S. economy, showing that consumer spending has remained robust since the pandemic. Overall, the current unprecedented rebound process of the U.S. economy, which began in the second quarter of 2020, is one of the strongest economic expansion cycles in the U.S. since World War II.

At the same time, U.S. consumer spending is increasingly driven by high-net-worth individuals, who are enjoying the so-called wealth accumulation effect brought about by rising housing prices and stock markets. Meanwhile, many low-income consumers are relying on credit cards and other loans to support their daily expenses, with some even showing significant signs of financial stress, such as increased default and delinquency rates.

"Cracks" in the Labor Market, Recruitment Activities Significantly Slow Down

In 2024, the main support for consumer spending—the once-booming labor market—has also begun to show warning signs. Recruitment activities in the U.S. have slowed down throughout the year, and the unemployment rate has slightly increased. The unexpected rise in the unemployment rate in July even triggered the widely watched leading recession indicator—the Sam Rule. Furthermore, the number of job vacancies in the U.S. has significantly decreased, making it increasingly difficult for unemployed individuals to find new jobs compared to the COVID-19 pandemic period, which is why recent data on continued unemployment claims in the U.S. has remained high.

Statistics show that in the week ending December 14, the number of continued unemployment claims unexpectedly increased by 46,000, seasonally adjusted to about 1.91 million, reaching the highest level since November 2021, exceeding the general expectation of economists of 1.88 million. This data aligns with other economic indicators showing that it is becoming increasingly difficult for unemployed individuals in the U.S. to find jobs compared to the high inflation period of the past two years

Federal Reserve officials began a new round of interest rate cuts in September due to concerns that a core factor supporting the U.S. economy—the labor market—may be approaching a dangerous tipping point. However, as the U.S. unemployment rate remains stable at historically low levels, Fed officials have become more optimistic in the last few months of the year, slightly raising PCE inflation in the latest "Federal Reserve Economic Summary," while maintaining a very optimistic outlook on the unemployment rate.

Regarding future benchmark interest rate expectations, Fed officials have cooled their expectations for the benchmark rates in 2025 and 2026. The latest "dot plot" shows that the expected rate cuts in 2025 have been significantly reduced from four times announced at the end of the previous quarter to two times, and the rate expectations for 2026, as well as the market's focus on the "neutral rate," have been adjusted upward. Following the release of the dot plot and Jerome Powell's press conference, swap contract pricing for rate cuts next year has also been significantly reduced, with some even pricing in no rate cuts next year. A recent forecast from Deutsche Bank indicates that the bank expects the Fed to pause rate cuts throughout next year, and the Fed's easing cycle to essentially stagnate.

One piece of good news for the U.S. economy is that wage growth has remained stable at around 4%, which should continue to support household finances, especially the spending of high-net-worth individuals.

Stagnation in the Fight Against Inflation

After a rapid decline in 2023 and further positive progress in the first half of 2024, the progress in achieving the Fed's 2% inflation target has stalled in recent months. One of the Fed's preferred inflation indicators—the personal consumption expenditures price index excluding food and energy (the so-called core PCE)—rose by 2.8% year-on-year in November.

The Fed's preferred inflation indicator stabilizes in 2024—the so-called core PCE index grows at an annual rate of 2.8% in November

Although Fed officials chose to lower interest rates by a full percentage point this year to alleviate economic pressure, officials such as Fed Chair Jerome Powell have recently stated that they need to see more positive progress in the fight against inflation before further rate cuts in 2025.

High Rates Continue to Hurt the U.S. Real Estate Market

Despite the Fed cutting rates by 100 basis points, the U.S. real estate market continues to struggle under the heavy pressure of persistently high borrowing costs in recent years. Mortgage rates fell to a two-year low in September, but due to the interest rate futures market's expectation that the Fed will need to maintain high rates for a longer period, mortgage rates approached 7% again after the Fed's "hawkish rate cut" in December. Some contractors continue to offer incentives to attract U.S. buyers, including so-called mortgage progressive payments and buy-downs, as well as occasional price reductions

U.S. Housing Affordability Remains at Historic Lows—An Index Below 100 Indicates That Median-Priced Homes Have Become Difficult to Afford

Although the real estate market has stabilized somewhat this year following slight interest rate cuts, it remains significantly below pre-COVID levels. In the existing home market, which accounts for the majority of home purchases, the National Association of Realtors predicts that real estate sales data for 2024 may even fall below last year, which was already the worst year for the U.S. real estate market since 1995.

A Year of Stagnation for Manufacturing

Manufacturing has been another major victim of persistently high borrowing costs in the U.S. Sustained high interest rates and weak overseas manufacturing demand have hindered investment in new construction and manufacturing plants, leading many factories to opt for significant layoffs to cut costs. Except for one month this year, employment in durable goods manufacturing has been declining sharply.

U.S. Manufacturing Has Experienced a Historically Weak Year—November Employment in Factories Decreased Compared to Last Year

Economists point out that the economic agenda of the next president, Donald Trump, who is set to return to the White House, may continue to exert significant pressure on U.S. manufacturing in 2025. Although Trump has promised to boost domestic manufacturing, some economists expect that his plans to raise tariffs, expel millions of immigrants, and cut taxes could significantly increase inflation, suppress labor market expansion, and disrupt global supply chains. Amid this uncertainty, economists predict that overall capital spending by U.S. manufacturers will grow at a relatively modest pace next year, with a possibility of slight contraction