As the year draws to a close, local economic analysts are reviewing the country’s and region’s current economic conditions, offering new insights into what the approaching year may hold.
On Tuesday, Northern Kentucky University economist Janet Harrah and Huntington Bank Chief Investment Officer John Augustine shared their insights on how national economic trends could affect regional business owners and consumers in 2024 at the Northern Kentucky Chamber of Commerce’s Eggs ‘n Issues breakfast panel.
“I think all in all, 2024 is going to be a good year for the economy with overall modest growth,” Harrah said.
From both Harrah’s and Augustine’s perspectives, the United States economy in 2023 has proven more resilient than initially projected.
This year, the Greater Cincinnati region is on track to add approximately 31,000 jobs, according to Harrah. Specifically, the leisure and hospitality industry- a sector vital to the region’s urban cores in Cincinnati and Covington- which has steadily grown with the addition of 11,600 jobs as of October. The leisure and hospitality sector accounted for nearly 40% of net new jobs in the region. Additionally, the healthcare industry added about 8,900 new jobs.
“You can see two sectors that were really hurt by the pandemic have really rebounded this year,” Harrah said.
In contrast, the financial services and retail trade sectors were two industries that lost jobs regionally in 2023. Harrah attributed job losses in the retail trade sector to its struggle to fill open positions.
“It’s not that they don’t have the jobs, I don’t think they can fill them,” Harrah said.
Moving to unemployment, the regional rate remains at 3.3%, which is below the national unemployment rate of 3.9% and the Kentucky state average of 4%. Harrah expects the regional unemployment rate to remain low in 2024.
During her Midsummer Economic Checkup at NKU in July, Harrah said the Cincinnati labor market was robust with “year-over-year employment growth above three percent and the unemployment rate remains very low at just 3.1%.”
So, what will the American economy look like in 2024?
For starters, Harrah expects overall economic growth to slow this upcoming year. While there are a few national forecasters like The Conference Board, an economic research nonprofit, predicting a slight recession in 2024, many, like the Indiana University Kelley School of Business, are anticipating the economy will “slow modestly.” Nationally, she expects the overall unemployment rate to rise slightly above 4%.
Augustine reminded the audience that the national economy subverted many analysts’ expectations going into the year.
“Number one, no recession,” Augustine said. “Coming into this year, there was a 65% chance we’d be in a recession in the country. This year, no recession. As a matter of fact, the opposite happened. The economy accelerated through the first three quarters.”
Locally, Harrah predicts that the Greater Cincinnati regional economy will mirror national trends.
“We are expecting growth nationally,” Harrah said. “We expect to see the same here in Cincinnati. We expect employment growth here to slow to about 1%, adding about 12,000 jobs, and the unemployment rate is expected to rise slightly to maybe about 4%.”
Her chief concern? Harrah expects consumer spending to slow because prices are rising faster than incomes.
“The economy is doing well overall, but there are still economic concerns, and a chief concern is that household income is starting to slow down even as prices are higher,” Harrah said.
Since 2019, median household incomes have decreased by approximately 5%, according to data from the Federal Reserve Bank of St Louis. At the same time, the American consumer’s purchasing power has decreased during that period. Using the CPI Inflation Calculator, $1,000 in 2019 has the equivalent purchasing power of about $1,200 today — an increase of $200 over four years.
The Federal Reserve Bank of St. Louis found that inflation in food, energy and core goods has decreased in 2023, but inflation in housing and core services like health care, education and hospitality remain high. Overall, inflation decreases in certain spending categories but remains higher in others.
“The rate of (price) increases are going to slow, but we’re still gonna have price increases,” Harrah said. “Prices are not coming down so many households are being squeezed.”
Lastly, Harrah predicts that certain asset classes, such as residential and commercial real estate, will decline in price. At their Nov. 1 policy meeting, the Federal Reserve kept interest rates steady at 5.25 to 5.5%.
Augustine predicted that the Federal Reserve would begin to lower interest rates in 2024. From his perspective, borrowers were affected by the high-interest rates because they saw it in their monthly bills for things like mortgage payments.
“The expectation is the interest rates are going to come down next year,” Augustine said. “Probably not the beginning of the year, but probably towards the summer when the weather heats up again. That’s probably when they should start coming down.”