Trends, whether in fashion or in our economy, have momentum and directionality associated with them. When the economy is at an inflection point, however, momentum may falter, and directionality may become confusing. That is where we find ourselves in the last quarter of 2024. Whether the inflection point leads upward or downward depends on a multitude of factors that are difficult to foresee, which makes the intermediate-term view of the economy murky at best.
Labor Market Surprises: During the third quarter, the Bureau of Labor Statistics announced that job gains between March 2023 and March 2024 had been overstated by 818,000, revealing an undercurrent of weakness in the job market. However, the September jobs report showed a remarkable upside surprise that cast doubt on the “softening labor market” narrative.
Inflation Stabilization: Core CPI has settled around 3.3% year-over-year, with the PCE Index hovering around 2.7% for the last six months. This stabilization allows the Fed to focus more on the labor market, though the interest rate environment may remain restrictive, given the Fed’s unchanged 2% inflation target.
Market Performance Disparities: The S&P 500 Index reached its 45th record high in 2024 as of October 10, but the Russell 2000 Index, more reflective of American businesses, showed a 10% return, trailing the S&P’s 21%. This disparity indicates selective growth expectations among investors.
Selective Liquidity: Although capital has flowed through traditional and non-traditional channels, like private credit, M&A deal volume remains subdued, indicating that liquidity is not uniformly available. High yield and investment-grade spreads are at historic lows, yet capital allocation is highly selective.
Overall, the Fed’s future policy decisions, particularly around interest rates, will be crucial as the economy stands at this inflection point. Continued rate cuts are anticipated, with two more 25-basis-point reductions expected in November and December 2024.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.