Sat, May 25, 2024

Mondays with Rick: Economic arrows pointing in right direction for 2024

Dr. Rick Franza, Professor of Management at the Hull College of Business, discusses a different, timely business topic each Monday in this column. This week, he forecasts what 2024 holds for the economy and the business world. The interview has been edited for clarity and impact.

ABD: It’s almost 2024, so it’s time to do a little prognosticating about economic and business trends we could see next year. Let’s start with one that everyone is concerned about: Inflation.

Rick: Inflation is steadying, but it’s not getting any lower. It’s still sticky. But I don’t think it’ll get much worse. The risk of inflation going up is relatively low. I think the trajectory is right, but the timing is tricky. When will inflation get down to 2 percent? I think it’ll take a while.

The Fed has been raising interest rates to ease inflation and has said it will lower the rates sometime next year. A lot of economists have the first reduction coming in June, but I think it’ll be later than that. I think they’ll keep it higher longer and won’t lower them until the fourth quarter.

ABD: 2024 is also a big election year with the presidential race, as well as the House of Representatives and a third of the Senate. How will the elections affect the economy?

Rick: The first important thing in the intersection of politics and economy will be in January and February when the budget has to be resolved. If something goes bad, one way we may avert a government shutdown is, with the elections coming up, no one wants to be blamed for it. There has to be a budget; the question is how much of a role the election will play in it. I think the Republicans hold a good position because of the issue of immigration and the border.

The Fed may also avoid doing anything with interest rates until after the election because they don’t want to appear that they have their finger on the scale. An earlier raise would be more favorable to the current administration.

ABD: What’s the outlook for the stock markets?

Rick: With inflation softening, the markets have been doing better for the last six weeks or so. People following the markets tend to be feeling good right now. With the markets, you’re betting on the future, not the present. The markets are starting to rise because people are buying, because they think the future looks good.

If inflation continues to go down and with the Fed more likely to lower interest rates, more money will become available, and the markets will grow.

ABD: Some economists have said that an increase in wages has offset inflation, while others say it hasn’t been enough. Will wages continue to increase?

Rick: Contradictory to the past, unemployment has stayed low and that has helped consumer earnings. Wage growth has been better, and when they go up, people are able to buy things. But if wages go up too much, then it begins to affect inflation again. What we’ve seen, unfortunately, is that people are not afraid to run up debt to buy things.

ABD: If people are still spending, that sounds good for businesses in 2024.

Rick: Consumer sentiment has been good, and that’s a good barometer. People continue to spend, so that’s good for business. But businesses always have to adjust. When things are going good, it’s a good time to tighten up processes and invest in the business, so you’ll be better prepared when the bad times come.

ABD: Does that mean 2024 will be a good time to make additions and improvements to the business?

Rick: That’s very cash-flow dependent. If you’ve got the wherewithal, being the first mover is always a good idea. But if cash flow is tight, you should play it fairly safe. It’s nice to be optimistic, just don’t bet on it. But have your eyes open and be ready to take advantage of a good opportunity.

ABD: We’ve heard a lot about Artificial Intelligence this year. What impact will AI have on businesses in 2024?

Rick: Will AI have an effect? The answer is yes. But there are three questions about it – What, when, and how.

AI will have an impact on the business world because technology has become more affordable, but the question is how fast a company can adopt it in an effective way. I think it’ll be a big year for it for bigger companies, but it’ll take a while for it to filter down to smaller businesses.

There’s also still a question of how AI will be utilized and what effect it’ll have. It may eliminate a lot of the low-skill jobs and that’s where the fear comes in for the economy. But I think businesses will redeploy their personnel. They won’t replace the personal touch.

ABD: This sounds like a positive outlook for the next year. How confident are you in your overall forecast?

Rick: By definition, forecasts are wrong, so it’s not judged on the overall, but how close you get to each part of it. I feel confident about most of them. Of course, things can happen that will change outcomes. But all the arrows are pointing in a positive direction, so I’m cautiously optimistic.

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