Deloitte's US economic forecast optimistic, key risks seen next year

Despite additional obstacles witnessed this year, Deloitte’s economic forecast for the United States remains optimistic, while taking into account some significant risks for the next year.

With employment rising by over half a million in January this year, the trend is unsustainable when the working-age population is growing at a trend rate of about 50,000 per month, Deloitte noted.

If employment doesn’t slow, wage growth could accelerate. The Federal Reserve (Fed) would then respond quite strongly, and continued interest rate hikes pose a clear danger for economic growth, it said in a note.

Businesses have ramped up investment since the initial impact of the pandemic, but they have been selective about what they are investing in. The business case for office buildings and retail space has collapsed, with online shopping and the shift toward working at home.

The savings rate has dropped from an average of around 9 per cent before the pandemic to around 3 per cent in the final quarter (Q4) of 2022.

The baseline Deloitte forecast assumes that continued job and income growth will support continued growth in consumer spending, but spending will slow as the savings rate eventually rises back to the 6 per cent range.

In Q4 2022, durable goods accounted for 12 per cent of total consumer spending, up from 10.5 per cent in 2019. If consumers just return to their pre-pandemic spending patterns, durable consumer goods sellers will be looking at a 20 per cent fall in spending. And consumers could conceivably spend even less since the durable goods they previously bought aren’t going to wear out that quickly, Deloitte said.

The Russian invasion of Ukraine has created some headwinds for US exporters. Lower demand from Europe (market for 15 per cent of US exports) and a higher dollar because of greater global risk have created some short-term challenges, it said.

Beyond the Ukraine crisis, however, things look more positive, it noted, as real US exports are now slightly above the pre-pandemic level.

As global financial and economic conditions normalise, US exporters are expected to see more opportunities. Demand for US goods is likely to rise in the medium term as the global economy recovers from the pandemic and the Ukraine invasion shock, Deloitte said.

Further, more normal financial conditions would create more opportunities for investment outside the United States and less desire to hold dollars to avoid risk. That will potentially lower the dollar, making US exports more competitive globally, it added.

Meanwhile, real US imports have fallen in the last two quarters. There has been a substantial decline in imports of consumer goods, reflecting the shift in consumer spending from goods to services. That is likely to continue, helping to dampen import growth, it added.

ALCHEMPro News Desk (DS)