As we enter 2024, a pivotal presidential election year, the famous phrase from James Carville during the 1992 presidential campaign, “It’s the economy, stupid,” seems more relevant than ever. The current economic landscape in the United States is a major talking point, especially with the upcoming election.
The Biden administration continues to promote its economic policies (Bidenomics), despite a general sentiment among Americans feeling economically worse off than during the Trump era. Many believe their economic prospects would be better under a second Trump administration.
Financial commentators are projecting an optimistic economic outlook for the year, but it’s worth questioning whether these views are independent or simply echoing the administration’s narrative. The economic indicators are sending mixed signals, suggesting a challenging year ahead.
In November 2023, the Consumer Price Index, a key inflation measure, stood at 3.1%, slightly above the Federal Reserve’s 2% target. Core inflation, excluding the more volatile food and fuel prices, remains stubbornly high at 4%. When compared to November 2022’s 7.1% inflation rate, it becomes evident that prices have increased significantly since 2021.
Inflation is particularly impacting the middle class and working Americans. Credit card debt has soared to over $1 trillion, with people resorting to high-interest debt for essentials like rent and groceries. The ability to obtain credit is becoming increasingly difficult, with a notable percentage of credit applications being rejected.
Furthermore, there’s a growing trend of people taking emergency loans from their 401k savings, with a 27% increase in emergency withdrawals in 2022. The ‘buy now, pay later’ schemes are also becoming more prevalent as a means to finance spending, indicating a deepening debt crisis.
The American Dream seems increasingly unattainable, with a study showing that median home prices in 99% of U.S. counties are beyond the reach of average income earners. Home purchase cancellations and auto repossessions are rising, reflecting the financial strain on consumers. The re-initiation of student loan repayments adds another layer of financial burden, with only 60% of borrowers making their first payment by mid-November.
These economic conditions are affecting consumer sentiment. The University of Michigan’s consumer sentiment index shows a decline, reflecting growing pessimism. Consequently, I anticipate a decrease in U.S. consumer spending as people grapple with post-holiday credit card bills. Oil prices are likely to escalate further due to geopolitical factors, impacting the cost of living.
The decrease in traffic through the Panama Canal could lead to higher prices and shortages in retail. All these factors point towards a potential mild recession, with a rise in unemployment and reduced consumer spending as Americans focus on debt repayment.
The presidential election in November 2024 will be crucial, with the economy likely to be the central issue. The American electorate’s decision will significantly influence the country’s economic direction. 2024 is shaping up to be a year of economic challenges, where the choices made by voters will be critical in determining the future course.