By: One World Publishing

Business leaders, economists and bankers recently gathered in Newport Beach, CA for the annual Economic Forum hosted by Sunwest Bank to hear the bank’s CEO Eric Hovde present a detailed analysis of the U.S. economy’s performance in 2023 and projected trends for 2024. 

Hovde provided a critical lens through which to view the economy. While 2023 brought unexpected resilience. He painted a more downcast picture of the impending new year marked by tightening profit margins, corporate downsizing and an ensuing impact on consumers and GDP.

In 2023, the U.S. economy demonstrated an unexpected robustness, defying gloomier forecasts from the previous year. Key aspects of this resilience included:

• Federal Reserve’s Strategy: The Federal Reserve paused interest rate hikes in the first half of 2023, a move contrary to earlier predictions. This pause came after a series of rate hikes that played a part in the collapse of major financial institutions, including Silicon Valley Bank, First Republic Bank, and Signature Bank, triggering widespread economic effects.
• Commercial Real Estate Dynamics: Consistent with forecasts, commercial real estate (CRE) values declined by an average of 15%, fitting within the anticipated 15-30% reduction.
• Overall Economic Growth: Contradicting the expectations of a recession, the U.S. economy expanded at an average rate of 3% per quarter.

Hovde credited this economic resilience to several factors, including substantial government stimulus spending post-pandemic, robust consumer spending bolstered by factors like the student debt pause, and the Federal Reserve’s response to bank failures, which included a temporary reversion to quantitative easing and full FDIC backing for deposits at the failed banks. This influx of $391 billion helped rally the equity market, especially benefiting the top-performing companies like Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla, collectively known as the “Magnificent 7.”

However, the economic landscape wasn’t without its challenges. Persistent high inflation, significantly above the Federal Reserve’s 2% target, and declining corporate profit margins remained concerns. Additionally, the rapid rise in interest rates exerted pressure on sectors such as housing, which, despite low inventory, struggled under the weight of these increases.

Hovde’s outlook for 2024 presents a complex picture, with several key predictions:

• Economic Downturn: The forecast suggests the U.S. economy will likely face a recession, with consumer spending expected to slow, leading to potentially only one positive quarter of GDP growth in 2024.
• Corporate and Employment Shifts: Corporate downsizing is anticipated, which could push unemployment rates higher, although they are expected to stay below 5%.
• Federal Reserve’s Monetary Policy: An additional interest rate hike of 25 basis points is possible, but rate cuts are anticipated in the latter half of 2024, not exceeding 75 basis points unless a global crisis unfolds.
• Equities Could Decline: The stock market might witness a 15% downturn within the next six months, with a potential rally as rate cuts commence.
• Housing Prices Will Decrease But Inventory Remains Tight: A potential decline of up to 10% in housing prices is expected, though limited inventory could offer some stability to the market, continuing to make homes unaffordable to many.

2024 Politics:

Hovde also delved into political forecasting, suggesting significant shifts in the U.S. political scene:

• Presidential Election: The expectation is for a change in the presidency, with Joe Biden not anticipated to remain in office post the next election.
• Senate and House of Representatives: The forecast sees the Republicans regaining control of the Senate, potentially flipping seats in West Virginia, Montana, and Ohio for a narrow majority. In the House, though both parties might experience some turnover, the Republicans are expected to hold a modest majority.