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Written by Karl Kaluza
on January 09, 2024

Economists are expecting a slowdown in the first half of the year. This could lead to increased job losses. Interest rates are expected to move lower later in the year, led by FED rate cuts. This should boost the economy in the second half.

Rate cuts aren't expected until June. But as these cuts permeate throughout the economy, they'll provide a tailwind to business growth. Lending costs will decrease, providing a cheaper source of financing for businesses.

Prices are moderating their upward trajectory, causing inflation to slow. This theme is expected to continue playing in 2024.

Consumer Spending and Job Market Outlook

As consumer debt costs will come down with a decrease in interest rates, consumers will have more to spend. But that is probably a second-half story.

Small businesses will feel the impact of higher interest rates during the first half of 2024 more than most other companies. Because small businesses are such a large source of employment for the economy, they could negatively impact employment as margins compress, causing layoffs to increase. But look for a recovery to start by these same businesses in the second half.

Affluent Consumers Gaining Influence

The affluent consumer is expected to be a main driver of growth during 2024. As discretionary spending takes a hit for many consumers, the affluent consumer will be less impacted. This is mainly due to their larger amount of savings. According to data from Visa, 20% of consumers (i.e., the affluent) make up 96% of current excess savings.

Lower to middle-income consumers rely more on loans and credit cards for spending than affluent consumers. Because interest rates are likely to remain above 4% in 2024, discretionary spending by these consumers should decrease, allowing the affluent consumer to play an outsized role in spending for 2024.

Discretionary spending includes travel, which could see some resilience, thanks to affluent consumers, while other areas decline.

 

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