Soft landing achieved?

The U.S. economy has been performing better than many people expected just a couple of years ago. A post-pandemic spike in demand, supply chain challenges, geopolitical shocks, and labor shortages raised inflation rates significantly and sparked a long series of interest-rate increases through 2022 and 2023. But the U.S. avoided the recession feared by some analysts. Recent economic news and data have revealed solid performance, built on strong business demand, robust consumer spending, a buoyant labor market, and a background of falling inflation. The economy appears on course for the ‘soft landing’ targeted by policymakers.

Yet a new U.S. Bank survey of 2,030 finance executives suggests that, while most are positive about the long-term outlook, there remains a significant degree of caution around the immediate prospects for the economy, as businesses grapple with ongoing challenges including the elevated cost of borrowing.

Below, we look at the tailwinds for this improved U.S. economic performance and speculate as to how things could play out in the coming months.

The recent economic performance has solid foundations.

Economic news headlines have been largely positive – and when you look closer at some of the underlying factors, the situation looks even more encouraging.

U.S. real GDP growth for 2023 was 2.5%, up from 1.9% in 2022. The figure for the first quarter of 2024 was a little more subdued at 1.3% but was still encouraging, with U.S. Bank expecting U.S. growth to reach 2.3% for 2024.

We have identified four key factors behind this upturn.

1. Business demand has held up.

Important areas of business that looked vulnerable to a downturn have held up well, including manufacturing. Despite higher prices and borrowing costs, production orders stayed firm. In some sectors, demand eased off a little but this is consistent with the intention of the Federal Reserve to manage inflation gently downward.

2. Consumer spending has been strong.

The second surprise of the past 18 months has been that consumer spending has stayed very steady. High levels of employment have benefited consumers, many of whom have been able to draw on savings built up during COVID-19 lockdowns, cushioning them from the effects of higher inflation and interest rates. In the second half of 2023, consumer spending growth averaged a sturdy 3% annualized.

3. The labor market is robust.

The jobs market has rarely been stronger. In fact, talent shortages have been a concern for many employers. Recent data has pointed to some easing off in this phenomenon but, again, this has been gradual. The number of layoffs remains low. Again, this is aligned with the Fed’s preferred trajectory. Increased immigration, boosting labor supply and reducing inflationary pressures, has also supported the labor market.

4. Inflation fever has broken.

It now looks clear that the U.S. economy has passed the height of the inflation crisis. Whether you use the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) index preferred by the Fed, its target of 2% is within sight. There has even been outright deflation in certain goods. Yet CPI remained stubbornly above the target range in the first half of 2024, in part because services inflation proved stickier than the overall figure, preventing the Fed from declaring mission accomplished.

Across the economy, then, what emerges is a picture of surprising strength. “We’re seeing a strong labor market, steady growth, overall activity holding up and inflation coming down. Few people thought that this was possible. We’ve never seen this type of dynamic before,” says Matt Schoeppner, senior economist at U.S. Bank.

Real GDP growth

2024 expected







“I am more positive than negative about what’s going to happen to the U.S. economy during the next 12 months."

-Matt Schoeppner
Senior Economist, U.S. Bank

Despite the recent upturn, businesses remain cautious.

Our survey of 2,030 U.S. finance leaders, conducted in January and February 2024, finds strong optimism about the long-term outlook: 58% are positive and just 15% negative about the next three years. However, in the near term, caution persists, with just 37% positive about the next 12 months and 33% negative.

The current priorities of finance leaders reflect this short-term wariness. Just 24% say their priority is driving revenue growth, compared with 37% who are focused on cutting costs across the business. Of those, 47% plan to cut costs by deploying technology, while a third (33%) expect to restructure their workforces. However, only 21% expect to make job cuts, slightly more than a year ago (19%).

Just 24% of the finance leaders are prioritizing revenue growth.

37% of finance leaders are focused on cutting costs across the business.

Those priorities reflect leaders’ assessments of the risks facing their business. While the number of leaders concerned by high inflation has dropped from 38% a year ago to 25%, 24% still say high interest rates are a worry, slightly up from last year (23%).

It’s little wonder that business is still concerned about interest rates, since the Fed has been clear that it will not rush into rate cuts and, when it does, they are likely to be gradual. “I don’t expect the Fed to cut rates at consecutive meetings,” says Schoeppner. “It’s more likely that it will make an initial cut and allow some time to see how it plays out in the economy before making further moves.”

That is a critical factor for business, as it will take time for the cost of long-term borrowing to reflect the effects of rate cuts. It’s understandable that finance executives remain sensitive to the impact of high rates. There are other potential economic risks to growth to consider as well, including the potential impact of high rates and prices on consumer spending.

Beyond current wariness lies a brighter longer-term economic outlook.

“I am more positive than negative about what’s going to happen to the U.S. economy during the next 12 months,” states Schoeppner. “We expect positive economic growth and put the chance of recession at only 25‒30%, which is about half of the probability at this point last year.”

Many finance executives will remain cautious until interest rates are firmly on a downward trajectory. Yet the experience of the past 12 months suggests that business can finally start to feel positive about the prospects for the U.S. economy through 2024 and beyond.

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Finance leaders voice their views in our 2024 CFO Insights Survey.

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This discussion is intended to be informational only and is not exhaustive or conclusive. It is not intended to serve as a recommendation or solicitation for the purchase or sale of any particular product or service. It does not constitute advice and is issued without regard to any particular objective or the financial situation of any particular individual. Some of the information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Other information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or a guarantee of future results. U.S. Bank and its representatives do not provide tax, accounting or legal advice. Each individual's financial situation is unique. You should consult your tax, accounting and/or legal advisor for advice and information concerning your particular situation.

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