A Slowdown Without Recession

Adobestock ©

The U.S. economy is moving in two opposite directions at the same time as it continues to drain its prior strength. Low unemployment, declining overall inflation, a strong U.S. dollar, and continued but slowing consumer spending are buoying economic growth. Pushing against this growth are high food, energy, and household-related costs, significant and growing federal deficits, a weak housing market with high interest rates, and wars in Ukraine and the Middle East. All of this leads us to the conclusion that the U.S. is heading for an economic slowdown, which will bottom mid-2024 before rising slowly through 2025, returning to trend growth (+2.0 percent) in 2026, all without any recession. Since flooring is more a discretionary item, its fortunes will fare slightly worse than the overall economy.

Some Bright Spots in the U.S. Economy:

Employment is growing, albeit at a slowing pace, with a low unemployment rate of 3.8 percent and labor participation at 62.8 percent.

  • Consumer spending adjusted for inflation continues to grow at a diminishing rate (2.1 percent YTD on 9/30/23), and it is being fueled largely by consumer credit as inflation-fueled prices take a bigger bite out of household income. Consumer credit outstanding is at record levels ($5.0 trillion at 9/30/23, an increase of 4 percent over the same period last year). With inflation pushing interest rates higher and total debt now at nearly 25 percent of disposable personal income, this situation cannot be sustained much longer. Consumer spending is the engine of the U.S. economy, representing two-thirds of the U.S. gross domestic product (GDP).
  • Inflation is falling and should end the year at 4.2 percent, and 2024 should see consumer price inflation fall to 2.8 percent.
  • A stable U.S. dollar is helping ease the impact of inflation as imports become less costly due to a favorable exchange rate. Dollar stability is the result of previous Fed policies and the dollar’s position as the world’s reserve currency.
  • Disposable Personal Income (DPI) will continue to rise, but not at the inflation rate. DPI will not rise close to the rate of inflation until 2026.
  • Commercial market as measured by real non-residential investment in structures, a measure of the inflation-adjusted investment in total new non-residential construction, is rising and should continue to strengthen before weakening in 2025, and then rising again in 2026 through 2028. The 2025 slowdown is partly the result of weakening corporate. Expect all commercial construction building types to rise in the forecast period, led by education, health care, and lodging.

Estimated growth in dollar value consumption by flooring product category for the year-to-date period ending September 30, 2023, versus the same period last year:

This is a summary of the December 2023 Quarterly Market Monitor Report published by Market Insights LLC. NWFA members have exclusive access to the full report, which provides forecasts and analysis of economic, market, and industry conditions and trends affecting the North American flooring market. The report includes a historical and forecasted volume of dollar sales of total wood flooring (at mill sell price) per metro area and state. Separate reports are available for the United States and for Canada. The availability of the reports on a quarterly basis will provide NWFA members with current data that can help them develop business plans, prioritize inventory, and react to market conditions in a timely manner. NWFA members may download the full report by visiting nwfa.org.

Factors threatening the U.S. economic situation include:

  • Inflation remains the most serious threat to economic stability. Although currently declining, it could easily rise again, threatening the positive course of the U.S. economy. Continued high prices on consumer staples and energy and high interest rates will threaten consumer consumption and home and non-residential construction and renovation.
  • Key economic indicators have fallen during the last five quarters, indicating that a significant downturn is likely in the next six months.
  • Fuel, transportation, and raw material prices remain high, all of which are boosting inflation. Further, the war in the Middle East could cause some oil-producing nations to cut production and exports.
  • More Americans than ever are working two or more jobs trying to make ends meet.
  • Undocumented immigrants and refugees entering the U.S. could expand welfare rolls and social costs, and raise government spending and debt.
  • The Ukraine war is threatening to grow into a broader and more dangerous conflict, absorbing increasing amounts of financial aid from the U.S.
  • Although unlikely based on experience and data available, a forced lockdown to thwart another COVID-19 or similar outbreak would shut down the economy and cause a major economic downturn or recession.

The U.S. economy is facing a major slowdown, though less likely a recession, in 2024, should the economic variables worsen.

Santo Torcivia is president of Market Insights LLC in Reading, Pennsylvania. He can be reached at 610.927.2299 or storcivia@marketinsightsllc.com.

Leave a Reply

Your email address will not be published.