Kelley reports ‘optimistic’ forecast for economy in 2024
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Researchers at the Indiana University Kelley School of Business are projecting optimism for the economy in 2024. The Kelley School presented its Futurecast 2024 in Indianapolis on Thursday, and said the economy will slow modestly in the first half of the year, then reaccelerate in the second half.
Phil Powell is executive director of the Indiana Business Research Center and says a recession is not expected for 2024 and while growth will be a little slower than normal, there will be growth.
“We will see pressure come off of interest rates, because we will see inflation fall in the 2-3% range that the Federal Reserve wants. That actually means that interest rates will crest this year, and maybe come down by about a quarter point,” Powell said. “The labor market will remain robust, and unemployment will hover around 4%, which is really good.”
Specifically, the Kelley School says inflation will fall to about 2.2% in the second half of 2024, just above the Fed’s target goal.
“Over the past year, in the face of a historic increase in interest rates by the Federal Reserve, the economy outperformed expectations,” Kyle Anderson, clinical assistant professor of business economics at the Kelley School, said in written remarks. “We think that growth will weaken, but we will remain in positive territory.”
The U.S. economy “greatly exceeded” the Kelley School’s forecast this time last year, which had concerns that domestic consumption might weaken or even see negative growth. Instead, consumption, which is a measure of spending among Americans, grew by 2.4% over the past year.
“Households have continued to spend money, and they spent it consistently and in a broad way,” Powell said. “They’ve been drawing down their savings that they accumulated during COVID. That has helped us to avoid a recession.”
But Powell expects consumption to fall to about 1.3% in through the first half of 2024, which will put a hit to spending on goods and services.
However, the outlook specifically in Indianapolis isn’t quite as rosy, Powell said. He noted the city is struggling with increasing real income for workers, with real GDP in Indy only growing 1% over the last 16 years.
The Kelley researchers expect Indy’s GDP to shrink in 2024, creating worry about the long-term competitiveness in the Indianapolis Metropolitan Area.
“Indianapolis has a productivity crisis. Between 2007 and 2021, real labor productivity in Indianapolis only grew 3%, while it grew 18% in the rest of the nation,” Powell said. “Indianapolis has had above average job growth with respect to the rest of the nation, but they’ve all been low wage jobs. Our workforce struggles to be competitive in terms of the skills and knowledge for the for the industries that make the region globally competitive.”
But, Powell notes that the state is making efforts to reverse this trend, such as the recently passed legislation to automatically enroll all eligible students into the 21st Century Scholars program and the new apprenticeship program from Employ Indy and Ascend Indiana.
For the state as a whole, researchers are forecasting income growth to decrease in the first third of 2024 but then stabilize at just under 4%.
The Kelley School said the forecast assumes that the Federal Reserve is done raising interest rates. On Wednesday, the Fed left rates unchanged but kept the door open for future increases if necessary.
The forecast predicted that the next move by the Fed to cut rates could take place in July.
A detailed report on the economic outlook for 2024 will be published in the winter issue of the Indiana Business Review in December. Kelley School faculty will also present the forecast in 10 other cities throughout the state, beginning Thursday in Richmond.
You can view the full schedule of presentations here.