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The US economy isn’t out of the woods yet, but it’s doing a lot better than many forecasters thought it would just a few months ago.
At least better than economists at S&P Global Ratings thought it would.
They now expect US real gross domestic product to grow by 2.4% in 2024, up from their forecast of 1.5% in November. Real GDP is the value of all goods and services a country produces, after adjusting for inflation.
Before the Bell spoke with Satyam Panday, chief economist at S&P Global Ratings, to discuss the state of the economy and how GDP impacts your wallet and 401(k).
This interview has been edited for length and clarity.
Before the Bell: You upgraded your economic growth forecast by almost a full percentage point. Do you consider that a significant change?
Satyam Panday: It’s been almost three months since our last prediction, and this is a significant revision. Since November we’ve had data come out that shows much stronger growth in the jobs market, so we made some changes. But the overall message still remains the same, we will be slowing down to below trend growth for some time, it’s just that the timing is pushed back because of the strength of US households.
In 2022 the narrative was that recession was imminent, but then forecasters kept pushing it back another six months. Are you saying that’s still the case?
Let me clarify — we do have a cyclical slowdown coming in the US.
A cyclical slowdown has to come unless you’re in the camp that thinks structural growth of the economy has risen dramatically. We don’t think that’s the case. The last two quarters were probably the peak growth momentum for this particular expansion, and it is going to come down to below trend. We don’t see a recession in the baseline, but a recession can still happen in a worst case scenario, like if the Federal Reserve keeps [interest rates higher] for longer or there’s some sort of external shock.
Some economists say we’ve already had a recession roll through different sectors but avoided a broad downturn. Do you think that’s the case?
It looks like that is exactly how this is going to play out this time around. We saw manufacturing weaken, then we saw the housing sector weaken and now it seems like those areas have found their floors — especially the goods-producing sectors. They’re going through a cyclical uplift, just as the pandemic-era pent-up demand in the service sector starts to sort of fade. I don’t like the word recession, but it is a cyclical correction.
Something that has been unique to this business cycle is the amount of fiscal policy that is in play — that has kept household balance sheets and business sector balance sheets intact. Think about the 2022 policies that were passed, the Inflation Reduction Act, the CHIPS and Science act. Those are playing into all of these numbers. If you just look at the public sector, its direct contribution to growth [as measured by GDP] right now is about 0.6 percentage points. That’s more than three times what you would see normally.
You cite the strength of the labor force as the main reason for this upward revision. Do you see employment softening anytime soon?
There are some pockets where the delinquency rates have started to move up in consumer credit cards and in auto loans. Those are a couple of cracks in the overall direction of consumer health.
And even though wage growth has remained elevated you can see the number of hours worked start to come down. That’s the first sign that overall income is not as strong as what wage growth is suggesting.
There are some other red flags, a lot of the contribution to growth is coming from, cyclical sectors like healthcare. Independent businesses aren’t planning to hire as much as they have in previous years, and temporary hires are growing. These suggest that as we go through the year we will start to see demand for employment soften even more.
Why should we care about GDP? How does it impact our 401(k)s or other investments?
The jobs market is a byproduct of GDP growth. If the economy is strong, the labor market is also healthy because businesses have a reason to keep on hiring and adding to wages. Productivity growth means the GDP is growing and the impulse to fire employees is going to be lower. The impulse to hire is going to be a little bit higher. That’s a key component of any person’s life: your job.
At the end of the day, it all comes down to jobs. I think that this should make people feel a little bit better about the prospects for the year.
Warren Buffett honors Charlie Munger as Berkshire reports record cash pile
Famed investor Warren Buffett’s annual letter to Berkshire Hathaway shareholders Saturday paid tribute to his longtime business partner and friend Charlie Munger, who died in November.
Investors have long sought wisdom from the Oracle of Omaha on markets, the economy and life in general. But Buffett opened Berkshire’s 2023 annual report on a personal note with a dedication to Munger, who died in November at age 99, just 33 days before the milestone birthday.
Buffett said that Munger was the “architect” behind the conglomerate. “In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten,” he wrote. “Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect.”
Berkshire Hathaway, meanwhile, reported a significant uptick in fourth quarter operating earnings, which totaled $8.5 billion, a 28% increase from a year ago. For the year, operating earnings rose to $37.3 billion, after setting a record of $30.8 billion in 2022.
The Omaha, Nebraska-based conglomerate closed the year with a net profit of $96.2 billion, a sharp turnaround from 2022’s net loss of $22.8 billion.
Berkshire’s insurance underwriting business, one of its major holdings, made $848 million in the fourth quarter, up from $160 million in the same period a year prior. Overall, insurance underwriting generated earnings of $5.4 billion in 2023, up from a loss of $30 million in 2022.
Berkshire also bought back $2.2 billion in stock last quarter, bringing the year’s total to approximately $9.2 billion in stock repurchases.
Saturday’s report showed that Buffett is sitting on a record pile of cash. Berkshire has about $167.6 billion in cash and equivalents, breaking last quarter’s record-high of $157.2 billion.
The stockpile has led some investors to speculate on whether Buffett is planning to acquire a new company to add to his portfolio.
US Supreme Court to hear landmark social media cases
The US Supreme Court is set to make a pivotal decision about what Americans can see on social media as it takes up two cases this week that could transform the internet as we know it, reports my colleague Brian Fung.
On Monday, the court will consider arguments on whether to give Texas and Florida significantly more control over social media platforms and their content, highlighting the central role that those services now play in modern American life.
The crux of the matter: Can these platforms decide for themselves what content goes on their sites — and what can be removed?
The states want to keep Facebook, TikTok, YouTube and others from removing users’ posts — potentially even ones that promote hate speech or eating disorders, lie to voters about elections and more. But that push is running up against the First Amendment.
A ruling for the states could even change how Americans hear about the upcoming 2024 elections everywhere from Instagram to X and beyond.
