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The US economy continues to defy the expectations of many, gaining jobs at a surprising pace given the challenges that seem to pop up constantly. Barring a major setback, we should see the expansionary pattern continue (possibly with some bumps along the way). Here’s a brief look at my latest projections for the US economy and factors affecting likely performance.
Inflation is not completely tamed, but the economy is in a much better position than a year ago. The last increase in target interest rates by the Federal Reserve was last summer, and there remains clear indications that cuts will begin in the next few months. The timing is somewhat dependent on data being released in the near future, as the Fed remains focused on its dual mandate of promoting maximum employment and stable prices. The most recent job increases and commodity costs may push back the timeline to some extent, but not for an extended period.
The number of US job openings remains high, though down from those in the early stages of the pandemic recovery; many industries continue to experience severe shortages. While the major COVID-related dislocations in the labor market have largely eased, long-term demographic trends are pointing toward ongoing challenges for the foreseeable future. Solutions will involve a range of options, such as artificial intelligence (AI), automation, and other capital investments, as well as enhanced workforce training and even childcare availability. Sensible immigration reform (while simultaneously protecting the border) will also be required.
While the current outlook embodies both positive and negative factors over the next five years, I anticipate that the US economy will expand at a relatively healthy pace. Growth has persisted despite challenges ranging from the Federal Reserve’s efforts to slow inflation to major geopolitical tensions around the world to addressing the many challenges emanating from the pandemic. At present, it appears as if the elusive soft landing may have already been achieved, though future events could certainly cause disruptions.
The Perryman Group’s latest projections indicate increases in US real gross domestic product at a 2.65% annual pace over the 2023-2028 period. Total employment is projected to grow by approximately 13.9 million net new positions, an annual increase of 1.72%. Performance will likely be below these thresholds in 2024, with momentum building over time.
Uncertainty will remain high due to the situations in the Middle East, Ukraine, Venezuela, the Red Sea, and elsewhere. A major escalation could lead to higher energy prices, supply chain disruptions, and other potential headwinds. We also must confront the quadrennial gyrations of election year politics. Nonetheless, the economy is on much more solid ground than in the not-too-distant past, and the underlying fundamentals sustain moderate expansion. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.
