The US economy continues to prove resilient despite last year’s predictions of a looming recession.
Friday’s stronger-than-expected jobs report was the latest sign. The US economy added 353,00 jobs, well above consensus expectations for 185,000.
Below, some of Wall Street’s brightest equity strategists and economists broke down their most important charts for investors that help explain the economy’s strength amid the highest interest rates in more than two decades.
Editor’s note: All charts were submitted prior to Jan. 26. All 33 charts in the Yahoo Finance Chartbook can be found here.
Claudia Sahm, founder, Sahm Consulting
“During the past two years, most forecasters told us that a recession was right around the corner. Some commentators like Larry Summers, the former Secretary of the Treasury, even argued that we ‘needed’ a recession to get inflation down. They were wrong. My recession indicator, the so-called Sahm rule, showed throughout that we were not in a recession, and it was unlikely that one was near.
“The Sahm rule uses the unemployment [rate] to characterize the economy. Specifically, it uses the three-month average of the unemployment rate to smooth out month-to-month swings. Then the most recent value of that series is compared to its low over the prior 12 months. If it is 0.5 percentage point or more higher, then we are in a recession. It is perfectly accurate since the 1970s, never triggering outside a recession and always triggering early in each recession. During the past few years, the Sahm rule did not trigger, nor was it particularly close.”
Mark Zandi, chief economist, Moody’s Analytics
“Critical to the economy in 2024 will be if consumers continue to do their part and maintain their spending. It is thus encouraging to see inflation moderate to below the growth in wages across all wage tiers. Consumers’ improving purchasing power, combined with low debt service burdens, higher net worth, and still plenty of excess saving among high income households, should ensure that consumers hang tough and that the economy and markets have another good year.”
Neil Dutta, head of economic research, Renaissance Macro
“A popular bearish talking point is that US consumers are ‘out of gas.’ They have drawn down all their excess savings, and, as a result, they no longer have a cushion of savings from which to spend. I don’t buy it. The excess saving story is one that has officially outlived its usefulness.
“Consumption is being supported by ongoing gains in real incomes. With consumer price inflation slowing, and the labor markets solid, real incomes are rising. Since May, real incomes net of [excluding] transfers, a key recession determinant, are up roughly 3% at an annual rate. Indeed, the personal saving rate is somewhat higher than it was a year ago. Bottom line: Consumers are not ‘out of gas.'”
Binky Chadha, chief global strategist, Deutsche Bank
“For more than a year now, the economist consensus has been steadfast in calling for a sharp imminent slowing in US growth. When this did not happen, the economist consensus has repeatedly simply rolled forward the forecast timing of the slowdown.”
Torsten Sløk, chief economist, Apollo Global Management
“The story in markets in 2023 was that US growth expectations were first revised down and then revised up after the easing in financial conditions following [the regional banking crisis] in March. … With the significant easing in financial conditions since November, we are beginning to see the same pattern in 2024. …
“The performance has been different in Japan and Europe, where growth expectations have been steady in Japan and revised significantly lower in Europe. In other words, the lack of a slowdown in 2023, which surprised the Fed, the consensus, and markets, was only a US story, and we are starting to see the same pattern play out again in 2024.” (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
Gregory Daco, chief economist, EY-Parthenon
“The resurgence in US immigration is playing a pivotal role in bolstering population growth and enhancing labor force participation, contributing significantly to the rebalancing of the labor market. This influx of new workers is aiding in alleviating the tightness in labor supply, especially in the sectors still experiencing a supply shortfall, which in turn is helping to moderate wage growth pressures, thereby favoring disinflationary pressures.
“This demographic shift promises to inject much-needed dynamism and diversity into the workforce, offering a more balanced and sustainable path forward for the economy.”
Ryan Detrick, chief market strategist, Carson Group
“We haven’t seen high productivity in our country for decades, but we think that is about to change.
“The past two quarters saw strong productivity numbers, and with AI innovations and nearly 8 million hires the past two years getting more comfortable with their jobs, we think we could see a major jump in productivity for many years coming up.
“This matters because the Fed hates to see higher wages, but when productivity is strong, this can allow for higher wages but inflation remains checked. It also opens the door for the Fed to cut rates as inflation is no longer a major issue. We saw a similar scenario take place in the mid-’90s. … Take note, the mid to late ’90s was a great time for our economy and for investors.”
Linda Yueh, adjunct professor of economics, London Business School, and fellow in economics, Oxford University
“This chart is a key factor for interest rates in a year which, absent another shock, looks to be a turning point in the business cycle. Central banks are concerned about inflation becoming embedded, the so-called second order effects, which is when headline inflation leads to higher inflation in wages, costs, and expectations. …
“This chart shows that wage growth has been slowing though remains elevated in the US and major European economies. This is particularly important in this rate cycle because the labour market has been tight and unemployment has been low despite inflation rising to double digits and a slowing economy. Therefore, central banks have been monitoring labour market developments for embedded inflation. This chart indicates … slowing wages alongside slowing price increases, which would bolster the case for cutting rates from their current restrictive stance in the US, UK, and the Eurozone this year.”
Liz Everett Krisberg, head of Bank of America Institute
“Throughout 2023, the US consumer demonstrated resilience. Despite moderating from its peak, overall spending growth remains positive, though higher-income household spending growth lags lower- and middle-income households. Differences in household wage growth explain why. Bank of America internal data demonstrates that higher-income households’ wage growth is lagging lower- and middle-income household wage growth, and, in fact, higher-income household wage growth turned negative (-0.1% YoY, 3-month moving average, [seasonally adjusted]) in December while lower-income households’ wage growth improved to +2.5% YoY, suggesting that higher-income household spending growth will continue to lag.”
Liv Wang, lead data scientist, ADP Research Institute
“Pay gains have slowed for more than a year. According to ADP Pay Insights, which uses payroll transactions data to provide a view on the wages and salaries of a cohort of almost 10 million matched employees over a 12-month period, the median year-over-year change in pay for workers who have stayed with the same employer over a 12-month period fell to 5.4% in December 2023, the smallest since September 2021. For workers changing jobs, the median annual pay change fell to 8%, the smallest since June 2021.
“Pay increases have stepped down from an unsustainable high level. We’ve passed the post-pandemic stage when pay gains for job changing or for leisure & hospitality workers hit double-digit percentages. The pay premium for changing jobs has narrowed.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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