Despite being highly educated, possessing brilliant academic minds, and having extensive experience in markets, governments, data, and statistics, many of our nation’s top economists often make significant mistakes. They attend exclusive meetings, forums, and conferences, write books, review papers, and oversee research, enjoying access to information not readily available to the general public.
Even the treasury secretary, Janet Yellen, and Fed chairman, Jerome Powell, made errors in predicting inflation. Initially, they labeled rising prices “transitory” after the disruptions caused by COVID-19 in the global supply chain. Nobel laureate Paul Krugman publicly acknowledged his mistakes, and they were not alone.
In 2021, 16 out of 36 living American Nobel economists incorrectly declared that the “new money” from government stimulus wouldn’t threaten inflation. A report revealed that 70% of economists polled by Bloomberg expected a US recession in 2023. Simultaneously, another poll by the National Association for Business Economics (NABE) found that 58% of economists believed there was more than a 50% chance of the US entering a recession in the same year. However, this never happened. The GDP growth rate in the third quarter (4.9%) rivaled some of American history’s most substantial post-war periods.
Could any of these experts have predicted 18 months ago that many of my clients would face double-digit interest rates today? Did they know that American consumers would continue to spend at unusually high levels despite wars, fluctuating prices, historically low housing affordability, uncertain markets, and wages struggling to keep up with persistent inflation? Our esteemed economists missed all of these developments.
Now, these same experts are making economic predictions for 2024. This raises the question: should we even be paying attention? This data is crucial. Business leaders are creating budgets, making hiring decisions, planning investments, and understanding the economy plays a significant role in these choices. Relying on inaccurate data could result in financial losses next year, impacting your cash flow and your ability to employ people and expand your business. It’s a big deal.
Websites like Trading Economics and Fred inundate you with various economic data, from global steel production to plant capacity utilization to the price activity of corrugated shipping containers. Some of this information is reported in the media. However, after nearly 30 years of examining this data, I’ve realized that much of it isn’t very useful. Why? Because most of it overlooks the key driver of the economy: the consumer.
If you’re curious about what 2024 has in store, keep an eye on these consumer indicators:
Paychex and ADP Employment Indexes
Pay attention to these monthly reports from the country’s two largest payroll service providers. They offer employment and wage data based on actual companies’ payroll information. Strong wage growth and low unemployment signal a robust job market; currently, both indicators are positive.
The Federal Reserve compiles monthly data on consumer loan delinquencies directly from banks nationwide. Auto loan delinquencies and mortgage delinquencies are also tracked. Although these figures are backward-looking, they are on the rise, which is concerning.
Consumer and Small Business Confidence
Despite skepticism about surveys, the University of Michigan and the National Federation of Independent Businesses have long-standing consumer and small business confidence surveys. While survey data should be approached cautiously, the consistently low and decreasing confidence levels from these sources suggest worrisome trends.
Watch for insights from the CEOs of central banks when they release quarterly earnings reports. These leaders provide a direct perspective on the economy. As of September 30, Wells Fargo’s CEO noted the impact of a slowing economy. JP Morgan Chase’s CEO warned of potential dangers, and Citi’s CEO observed cracks in lower credit score consumers.
While not infallible, retail CEOs often have a finger on the pulse of consumer behavior. Observations from leaders like Amazon’s CFO and Macy’s CEO indicate that consumers are still spending, but there’s a focus on deals and uncertainty in the macroeconomic environment. Despite a positive outlook from the National Retail Federation for holiday sales, big-box CEOs aren’t expressing much optimism for 2024.
These insights don’t come from government surveys or economists in academic settings. Instead, they are derived from real-life companies and their actual data, providing valuable information about consumer behavior, including earnings and spending patterns. When consumer spending slows, it typically signals an economic downturn, making these indicators crucial for understanding the economic landscape. No economist needed to tell you that.