Takeaways from Anirban Basu’s Economic Update

By Daniel McGarvey, CFA, Senior Portfolio Analyst, on behalf of Stonebridge Financial Group advisors

In November, Stonebridge Financial Group and Presence Bank were pleased to host economist Dr. Anirban Basu in Hershey as he presented an update on the state of the economy. Here are key takeaways from his presentation.

• U.S. economic growth has been outpacing expectations
  • Despite widespread predictions of recession, real GDP increased 2.5% in 2023 and has remained resilient this year. Last quarter it grew at an annualized 2.8%, with Q4 projected to grow 2.6%.
• Consumer spending has been a significant driver of growth
  • We have seen record spending on experiences such as concerts and travel and an increase in retail sales. However, consumers have now spent their pandemic-era savings, and delinquencies have risen as they have become increasingly reliant on credit cards. U.S. credit card debt surpassed $1 trillion last year and has continued to climb rapidly.
• Inflation is still a threat
  • The Consumer Price Index has fallen below 3%, but the effects are cumulative, and Americans are unlikely to stop feeling the pinch of high prices soon. On a non-annualized basis, prices have increased around 23% over the last four years, with some categories like energy and transportation increasing by almost 50%. This makes the record levels of credit card debt less surprising.
• Household wealth is becoming increasingly concentrated
  • The top 10% of households hold two thirds of the nation’s wealth, while the bottom 50% control only 2.5%. This spread has widened over the last few decades.
• The labor market has been remarkably strong
  • Despite challenges like natural disasters and strikes, the U.S. has added jobs consistently over the last four years. Cities throughout Central PA such as Harrisburg, York, and Lancaster have had job growth outpacing the national average. However, national hiring rates and job openings are beginning to decline, signaling a potential labor market slowdown.
• High rates have likely not fully impacted the economy yet
  • The Federal Reserve raised interest rates aggressively starting in 2022 and has now begun to cut rates, but monetary tightening typically acts with long lags of 18 months or more. Even though the tightening regime has technically ended, it would not be surprising to see high rates continue to trickle through the economy by reducing investment, slowing hiring, and increasing unemployment.
• Real estate continues to face headwinds
  • Rising mortgage rates (currently around 6.8% for a 30-year mortgage), combined with high prices due to limited inventory and low seller activity, have reduced homebuyer demand and significantly cooled the housing market.
  • The commercial office sector faces high vacancy rates of nearly 14%, which has led to declining property values, especially in older urban areas.
  • Multifamily construction is slowing due to financing challenges and overbuilding in certain markets.
• Despite economic momentum, sentiment is weak
  • Only 6% of small business owners believe the next three months are a good time to expand (as of October 2024), and the Consumer Sentiment Index has risen since the pandemic but is still relatively low compared to the prior decade.
• Leading indicators suggest a slowdown, but not necessarily a recession, next year
  • Our country and its citizens are deeply indebted and face high borrowing costs, the consequences of which are yet to be felt. The added headwinds of persistent inflationary pressures, labor market shifts, and uncertainty over geopolitics and federal policy could hinder our trajectory moving forward.

Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.

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Daniel is a Senior Portfolio Analyst at Stonebridge Financial Group and works on portfolio analysis and other related tasks. When away from the office, Daniel spends his time playing guitar, reading, and exploring the outdoors.