Downturn vs recession: economist’s predictions for 2024
November 15, 2023
Although the economy at large has avoided a full-blown recession, the transport industry has not been as lucky. High operating costs and reduced demand have led to serious attrition across the supply chain. Will 2024 see a normalization of the market, or will volatility continue to wreak havoc in the transport field? For insights into what the future might hold, we turn to the expertise of Dan North, Senior Economist at Allianz Trade North America.
North’s foresight into the economic landscape is attributed in part to his keen observation of early warning signs. He highlights the role of inflation, Federal Reserve actions, and interest rate trends as indicators that have sparked his attention. The early identification of these fundamental shifts has enabled him to predict a slowdown in economic growth, possibly skirting a recession.
“The bottom line is that we expect to see three quarters of near-zero growth,” North explains. “We’re skating around a recession, but there’s definitely going to be a slowdown.”
One key indicator that informs this view is the yield curve, or the difference between short-term and long-term interest rates. A negative yield curve, where short-term rates surpass long-term rates, historically precedes economic downturns. North points out that the yield curve turned negative in September, signaling a potential economic slowdown. However, with the time lag involved, expect the full effects to materialize over the next three to five quarters.
How will the economic outlook affect the transport economy in the new year? Watch the latest episode of the Stay In Your Lane Podcast for more insights into this important topic.
Close observers of economic trends may wonder why interest rate hikes by the Federal Reserve didn’t immediately impact the economy as expected. During the pandemic, corporations and households locked in financing at historically low rates. This move insulated them from the immediate effects of interest rate hikes. Additionally, the Federal Reserve’s actions to control inflation and raise rates were crucial in curbing excessive economic growth.
“If they hadn’t raised interest rates, inflation would still be growing, and the economy would be growing even faster than it is now,” North says of the Fed’s efforts. “Those interest rate hikes have helped tamp things down.”
Consumers played a significant role in sustaining economic activity during the pandemic, utilizing excess savings from fiscal stimuluses. However, North says the depletion of these savings and the resumption of student loan repayments are factors contributing to a potential drop in consumer spending. Consumer spending accounts for about 70% of economic activity, making it a crucial factor in economic health.
Another emerging trend worth noting is the alarming increase in defaults, with bankruptcy filings up 23% year-over-year and expected to rise by nearly 50% this year. The trucking industry, in particular, has seen a notable increase in company closures, indicating challenges relating to supply and demand within the logistics field.
Overall, projections showing a potential economic downturn with near-zero growth for the remainder of the year seem reasonable, with the effects to manifest over the next three quarters. “All of the recent recessions were accompanied by the Federal Reserve raising interest rates, followed by a second imbalance,” says North. “At this moment, we don’t see that extra imbalance yet. That’s why we’re calling it a downturn. We think it’s going to be pretty shallow.”
The presence of various geopolitical and economic risks could further exacerbate the situation. While the transport industry faces challenges in a landscape marked by increasing defaults, the economic insights provided by Dan North should better equip companies to navigate uncertainties and safeguard against the worst outcomes.
Dan North’s comprehensive analysis provides businesses, including Triple T Transport, with valuable insights into the economic landscape of 2024. As they face challenges arising from potential economic downturns and increasing defaults, staying informed and leveraging expert perspectives becomes crucial for adapting to the evolving economic environment. Learn how Triple T Transport offers consistency to shippers in turbulent times. And Subscribe to the Stay In Your Lane Podcast to help your business stay ahead of emerging economic trends in the new year and beyond.