Dive Brief:

• The U.S. economy — spurred by higher-than-expected consumption, investment and government spending — will probably grow 2.2% this year, or nearly a full percentage point more than estimated in December, the National Association for Business Economics said Monday, citing a panel of economists.
• “More than three-quarters of the panelists forecast that the U.S. economy is heading for a soft landing in 2024,” NABE Outlook Survey Chair Mervin Jebaraj said in a statement. “Panelists also forecast stronger economic growth, lower inflation and lower unemployment rates” than Federal Reserve officials predicted in December, according to Jebaraj, director at the University of Arkansas’s Center for Business and Economic Research.
• Borrowing costs will likely fall this year and next, the panel of 41 economists predicted. The yield on the benchmark 10-year Treasury note will probably decline from 4.3% to 3.8% by the end of this year and 3.7% by the end of 2025, they said.

Dive Insight:

Recently released, higher-than-expected data on the job market, and consumer and producer prices suggest that the Fed, in order to curb inflation to its 2% target, may need to keep the main interest rate at a 40-year high longer than markets anticipated in early February.

Employers added 353,000 jobs last month — far higher than expected — and unemployment was unchanged at 3.7%. Consumer prices in January rose 3.1% on an annual basis, and the producer price index increased 0.3% after falling 0.1% in December.

“While the US economy entered 2024 with solid momentum, noisy economic data at the start of the year has made the outlook more difficult to assess,” EY said in a report, while also predicting 2.2% economic growth this year.

“We believe the inflation picture is likely not as hot as the latest consumer price index and producer price index reports suggest, while the labor market picture is likely not as rosy as painted by the strong January jobs report,” according to EY. It sees the CPI rising 2.5% this year and 2.2% in 2025.

U.S. gross domestic product will increase at a 2.9% annual rate during the first quarter, according to a prediction by the Atlanta Fed, after expanding at a 3.3% annual rate during the fourth quarter.

NABE panelists since December “sharply revised upwards their projections” for 2024 growth, Ellen Zentner, chief U.S. economist at Morgan Stanley, said in a statement. They see brighter prospects for “key sectors of the economy, including personal consumption expenditures, nonresidential fixed investment, residential investment, and government consumption expenditures and gross investment,” according to Zentner, NABE president.

More than two out of five panelists (41%) identified productivity growth as an “upside risk” to their GDP growth prediction, the NABE said. Meanwhile, 26% said a “soft landing,” or an easing of inflation to 2% without a downturn and mass layoffs, may prove their forecast to be pessimistic.

“Too much monetary policy tightness” poses the biggest downside risk to expectations for GDP growth, according to 41% of the panelists. Nearly one out of five respondents (18%) identified a consumer or corporate credit crunch as the top threat to the economy, the NABE said.

Inflation persisting above the Fed’s target and delaying a monetary easing underlie EY’s negative scenario for the U.S. economy.

“Persistently high borrowing costs strain corporate and households’ balance sheets, reducing their ability to service and refinance their debt,” EY said, describing how a recession may unfold.

“The vulnerability of borrowers, already in precarious financial positions, is amplified, leading to a rise in defaults among corporates and households,” according to EY. “The higher cost of borrowing dampens housing market activity and puts further downward pressure on consumer demand.”