In this article, John Denslinger takes a detailed look at the year ahead and then expands on four potential landing scenarios: soft, bumpy, hard and crash
When fiscal year 2023 closes, a majority of companies will see growth exceeding original forecasts. The outlook back then was murky at best: rampant inflation, interest rates on the rise with no apparent upper limit, supply chain disruptions and acute labor shortages. Would there be a recession or soft-landing? Despite all the conjecture, the economy just didn’t contract. Contrary to historic norms, consumer spending remained consistently stronger than economists predicted. Employment actually strengthened as well triggering labor shortages across the nation.
Now the 2024 forecast period is at our doorstep but the same question remains: will there be a recession or soft-landing? Stick the landing, stick the forecast! But as we all know, nothing is completely simple. Global turmoil has increased dramatically with the ongoing war in Ukraine, Chinese aggression towards Taiwan and, most recently, the unforeseen war erupting in the Middle East. Also, 2024 is a US Presidential election year with political parties polarized on the country’s economic and social direction. Obviously, the greater impact is 2025 and beyond, but the election headwinds throughout 2024 could be an added factor.
Inflation is still the foremost uncertainty heading into the new year. If the Federal Reserve holds true to its two per cent goal, the landing could be a rough one. According to a Deloitte Deep Dive assessment, four landing scenarios are possible: soft, bumpy, hard and crash.
A soft landing is ideal. In this situation, inflation approaches target, the Fed holds rates or begins to moderate, consumer spending rebounds, labor markets strengthen and any disruption in the supply chain quickly evaporates owing to prior onshoring efforts. Deloitte projects 2024 inflation at 3.0 per cent and GDP at 1.5 per cent in this case. Business begins to expand again.
A bumpy landing is almost as good but there are lingering impediments to economic growth. Inflation isn’t quite tamed yet and the Fed is ambivalent about further rate hikes. Consumer spending picks up, labor markets remain tight and the supply chain seems resilient and flexible despite some disruption. Deloitte projects inflation at 4.0 per cent and GDP at 1.0 per cent. Some businesses may cautiously expand while others sit on the sidelines.
A hard landing is both undesirable and a forecasting nightmare. Inflation collapses as the Fed’s aggressive monetary action over-corrects. Consumer spending is restrained. Unemployment increases slightly, but wages stagnate. Supply chains suffer from mixed messages. Deloitte projects inflation at 0.5 per cent and GDP at 0.5 per cent. Businesses will likely ‘wait and see’ on expanding often demanding quick response to surges or push-outs.
A crash landing is obviously an economic disaster. Inflation actually increases despite Fed action. Consumer spending stagnates and labor market contracts as unemployment escalates. Supply chains face disruption and painfully absorb onshoring costs waiting for better days ahead. Deloitte projects inflation at 9.0 per cent and GDP at a dismal -1.0 per cent. Businesses will be in contraction mode.
Consider one last data point from the Conference Board’s published economic forecast. It’s quite telling. GDP dips from 2.2 per cent in 2023 to 0.8 per cent in 2024. That would say the Conference Board expects a bumpy to hard landing ahead. Not a glowing endorsement for growth. Add global conflicts, expensive climate initiatives, energy interruptions, a dysfunctional congress and new disruptive technologies like AI, 2024 will be a most challenging year to forecast. Sticking the landing won’t be so easy this time around.