by Calculated Risk on 12/20/2024 12:04:00 PM

At the end of each year, I post Ten Economic Questions for the following year (2024). I followed up with a brief post on each question. Here is review (we don't have all data yet, but enough).  I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments.

I don't have a crystal ball, but I think it helps to outline what I think will happen - and understand - and change my mind, when the outlook is wrong.  As an example, when the pandemic hit, I switched from being mostly positive on the economy to calling a recession in early March 2020.

Here were my questions for 2024 (posted in December 2023).  The analysis for the housing related questions were posted in the newsletter, and the other questions on this blog.

10) Question #10 for 2024: Will inventory increase further in 2024?

"The bottom line is inventory will probably increase year-over-year in 2024. However, it seems unlikely that inventory will be back up to the 2019 levels."

That was correct.

Here is a graph from Altos Research showing active single-family inventory through December 16, 2023.

The red line is for 2024.  The black line is for 2019.  Note that inventory is up from the record low for the same week in 2021, and up 26% compared to the same week last year.

However, inventory is still below pre-pandemic normal levels. 

9) Question #9 for 2024: What will happen with house prices in 2024?

"I don’t expect inventory to reach 2019 levels but based on the recent increase in inventory maybe more than half the gap between 2019 and 2023 levels will close in 2024. If existing home sales remain sluggish, we could see months-of-supply back to 2017 - 2019 levels.

That would likely put price increases in the 3% to 4% range in 2024. I don’t expect either a crash in prices or a surge in prices. "

That was correct.

As of September, the National Case-Shiller index SA was up 3.9% year-over-year. (Case-Shiller for October will be released December 31st).

The FHFA index was up 4.3% YoY in October, and the Freddie Mac index was up 3.7%. 

 The ICE HPI was up 3.0% in November.

And no crash or surge in house prices in 2024.  

8) Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?

"My guess is multi-family starts will decline further in 2024, likely down 25% or so year-over-year. Single family starts will likely be mostly unchanged year-over-year, putting total starts down close to 10%. I expect New Home sales to be up around 5% YoY."

This was close.

This graph shows single and multi-family housing starts since 2000.

As of November, single family starts were up 7.2% year-to-date (YTD) compared to the same period in 2023.  Single family starts were a little stronger than expected.

Multi-family starts were down 28.9% YTD (pretty close!).

Total starts were down 4.3% YTD.


The next graph shows new home sales as of October (November sales will be released next week).

New home sales were up 2.1% YTD in October. 

Note that sales in October were impacted by the hurricanes, and I expect some bounce back in November.

That will likely put YTD sales even closer to my guess.

7) Question #7 for 2024: How much will wages increase in 2024?

"Clearly wage growth is slowing and I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker. My sense is nominal wages will increase close to 3.5% YoY in 2024 according to the CES. "

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Excluding the pandemic spike, wage growth peaked at 5.9% YoY in March 2022 and declined to 3.6% in July 2024.  However, wages have ticked up to 4.0% YoY in November.

6) Question #6 for 2024: What will the Fed Funds rate be in December 2024?

"My guess is there will be around 5 rate cuts in 2024 ... I also expect the FOMC to start discussing slowing balance sheet runoff late in the year."

There were 4 rate cuts in 2024 with the Fed Funds rate target range at 4-1/4 to 4-1/2 percent in December 2024. There has also been some discussion of slowing balance sheet runoff.

5) Question #5 for 2024: What will the YoY core inflation rate be in December 2024?

"My guess is core PCE inflation (year-over-year) will decrease in 2024 (from the current 3.2%), and I think core PCE inflation will be close to the Fed's target by Q4 2024."

According to the November Personal Income and Outlays report released this morning, the November PCE price index increased 2.4 percent year-over-year, and the November PCE price index, excluding food and energy, increased 2.8 percent year-over-year. Inflation declined, but not as much as expected.

4) Question #4 for 2024: What will the participation rate be in December 2024?

"There are probably a few more people that will return to the workforce in 2024, pushing up the participation rate. However, demographics will be pushing the rate down. So, my guess is the participation rate will decline slightly in 2024 to around 62.3%"

My guess was close.

The Labor Force Participation Rate decreased to 62.5% in November from 62.6% in October.

This is down from the post pandemic peak of 62.8%.

Demographics (retiring baby boomers) is pushing down the rate.

3) Question #3 for 2024: What will the unemployment rate be in December 2024?

"Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will remain in the mid-to-high 3% range in December 2024. (Lower than the FOMC forecast of 4.0% to 4.2%)."

The unemployment rate was at 4.2% in November (The FOMC projections beat me on this one).

2) Question #2 for 2024: How much will job growth slow in 2024? Or will the economy lose jobs?

"So, my forecast is for gains of around 1.0 million to 1.5 million jobs in 2024. This would be another solid year for employment gains given current demographics."

This graph shows the jobs added per month since January 2021.

Job growth slowed from 3.0 million in 2023 but was still strong in 2024.

Through November the economy has added 1.98 million jobs in 2024, above my guess.

1) Question #1 for 2024: How much will the economy grow in 2024? Will there be a recession in 2024?

"The FOMC is expecting growth of 1.2% to 1.7% Q4-over-Q4 in 2024. ... My sense is growth will be sluggish in 2024, and the economy will avoid recession. ...

So, my guess is that real GDP growth will be positive in the 1% to 2% range in 2024.

I was correct about no recession, but growth will likely be closer to 2.5% or so in 2024.

For the most part, the economy evolved as expected in 2024. Economic (GDP) and employment growth outperformed my guesses.