2024 economic outlook for Marin County a positive one
Inflation and the high cost of living still top the list of major concerns consumers face today in the wake of tight monetary policy. But this is already beginning to change with lower prices for appliances, gasoline, furniture, and used cars — as well as due to the possibility of interest rate cuts affecting borrowing costs coming into view. At the same time, the labor market remains strong, calming fears of a pending recession.
The state of the national and local economy was the topic at December’s Marin Economic Forum. The forum is designed to recap 2023 and offer a preview of what to watch for in 2024. Economic Forum CEO Mike Blakeley hosted the online briefing and introduced Sonoma State University Economist Dr. Robert Eyler who provided an overview of current realities while also offering a cautious, but positive forecast for the year ahead.
High inflation may soon start to fade for Americans in 2024 after the Federal Reserve announced Dec. 13 that it would hold steady the current rate set in July and hinted that rates could be cut three times next year — after raising rates 11 times since March 2022.
“Before the recent Fed announcement we saw a lot of disagreement between different groups,” said Blakeley. “For example, The Economist reported in December that four of the largest investment banks have different perceptions for economic growth what will happen in 2024 ranging from 1% to 2.5%. Very strong economic growth is from 2 — 3%. That range of disagreement is interesting. It underscores no one really knows but everyone has an opinion. These estimates will probably change when rates decline.”
Labor Market Strength
According to Eyler, “Job growth continues. The labor market’s continuing strength is the main reason why we have not had a declared recession in the U.S. since the original shock of the pandemic. Today the labor market is expanding from its pre-pandemic peak and is about 3.3% above the January 2020 seasonally adjusted data for the number of people working in the U.S.”
Eyler said it is important to keep in mind what the Federal Reserve is considering when thinking about increasing or decreasing interest rates.
“While the labor market is increasing 3.3%, it is increasing at a decreasing rate, which means this line on a chart is starting to get a little flatter. In addition, the Federal Reserve also wants to see job growth in the U.S. fade a little bit, and for the most part that decline has also started.”
He said, “When we see a strong labor market start to slow, in a sense this speeds-up a drop toward the longer-term inflation expectations level.”
At the same time Eyler said more people living in Marin County are working from home (25.9% in 2022) the second highest rate in the state compared with 13.6% for all of California.
The transition between a hotter job market and higher inflation, to a flatter job market and lower inflation is really what the Federal Reserve has been trying to craft with higher interest rates, Eyler stated. “The game is how much of that job downturn, if it materializes, will ultimately move the entire economy closer to recession.”
“Today the labor market remains relatively warm, and without some coldness coming into this market, we will not have a declared recession in the U.S. anytime soon. We have seen prices dropping. But Consumer Price Index data came out suggesting that we are still on track to get back down to what you could think of as the inflation level the Federal Reserve would like to see.”
Core Personal Consumption Prices
Eyler said the Consumer Price Index is not necessarily the price index that the Federal Reserve is watching. “When thinking about policy, the Federal Reserve watches the Core Personal Consumption Expenditure Price Index a measure of consumer spending except for food and energy products and services.”
For most of the time to October 2023 this indicator (the price of that inflation rate representing the percentage change from 12 months previous), stayed near the 2% base line from 2007 to 2021 but shot up to above the 5% level in 2022 for 7-8 months — coming down to 3.5% last October. This was comparable to October 2022 prices for what consumers buy at home, Eyler said.
“What the Federal Reserve is trying to do is shape how financial and labor markets think about inflation and ultimately how we think about it at home by taking steps to adjust the ups and downs of the Core PCE long-term inflation rate by bringing it closer to the 2% level considered to define long-term inflation expectations, which at least for this year is going a little faster than they expected,” Eyler added.
