Expect a 'new normal' in 2024: Economist

Despite inflation and higher interest rates, consumers still increased their holiday spending, according to the latest data from Mastercard. RSM Economist Tuan Nguyen isn't surprised given the excessive savings Americans built up during the pandemic. Nguyen believes that 2024 will be the year a "new normal" sets in, with the US economy achieving a soft landing with growth rates returning to pre-pandemic levels. However, Nguyen argues that over the coming years, inflation will be higher because "demographic changes, labor shortages, and re-globalization will lead to some more pressure on prices."

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Video Transcript

- All right. Let's get a pulse holiday, a post holiday pulse on the US consumer going into next year. Consumer confidence in December has risen to the highest level in five months. Mastercard said this week, US retail sales rose a decent 3.1% during the crucial holiday shopping season. So is the upbeat consumer data about to get even better as the Fed potentially cuts rates in March 2024 as Goldman Sachs economists predict?

Joining us now is Tuan Nguyen, RSM US economist. Tuan, good to see you here this morning. Are you surprised by this consumer resilience we are seeing here in December, and what are some of the biggest risks you see to consumers next year?

TUAN NGUYEN: We are not totally surprised by the improve in terms of confidence from the consumers because we know that there's still a lot of excess savings, around $400 billion in terms of excess savings. And it's always great to be on air at the end of the year to talk about good news, right? 2024 we think will be the year when we begin to experience the new normal.

Now first when we refer to normal, what we mean is that in 2024, we believe that the economy can achieve its soft landing goal of returning to around 1.8% to 2% growth, the kind of growth that we saw pre-pandemic. And in terms of inflation in our base case, we think that we will continue to normalize toward the inflation target rate of 2%, and underlying inflation is expected to end the year around 2.5%.

Now however, this is not quite the 2% that the Federal Reserve is aiming for, and that's really the new aspect of the equation that will come into play, which we believe will be with us for the next three to five years because in the next economic period, demographic changes, labor shortages, and reglobalization will lead to some more pressure on prices, which we expect that inflation target will be around 2% to 3% in the next three to five years, maybe longer than that, which is, of course, higher than the 10-year leading up to the pandemic that we all accustomed to.

And if you've been following our prediction closely, we have been making the same case for about a year now. And so far, everything seems to be falling into places according to our forecasts.