Economic Risks and Opportunities Ahead for Supply Chains


economic barometer

The global economy has also been slowing, but the U.S. economy continues to post solid growth. Our U.S. economic outlook is modestly positive, although we expect a slowing in U.S. growth, U.S. job gains and U.S. inflation this year. Meanwhile, European, Chinese and emerging market growth have been under pressure, and an aggregate of Manufacturing PMIs reflected global contraction for a 16th consecutive month in December 2023. High inflation has pushed central banks to raise interest rates, but those policies are poised to reverse and lead to rate cuts, which is poised to support growth in the second half of 2024 and 2025.

looking ahead

Despite a modestly positive U.S. outlook, there are some significant risks. Cold War Two geopolitical risks could be the most disruptive to the outlook, as they present risks to supply chains, oil prices and the global economy. Plus, uncertainty related to the 2024 U.S. election is high. The most disruptive outcome for consumer confidence and the economy, and the worst-case scenario overall, is if we do not know who won the presidential election quickly.

Looking Ahead to the U.S. Election

The 2024 U.S. election is likely to involve some unprecedented factors, which may be related to the eventual nominees, the potential success of third-party candidates, or the contested nature of the election outcome. One thing we do not expect is that we will get past the 2024 election without some surprises and uncertainty. Depending on the severity of uncertainty related to the election outcome, it could dampen consumer sentiment in the fourth quarter, weighing on the outlook for growth late in the year and Q1 2025.

While the outcome of House and Senate control—let alone individual elections—is difficult to predict, the presidency has a more reliable economic indicator that has been historically predictive: the unemployment rate. Over the past century, every incumbent did not win re-election whenever the unemployment rate rose between the midterms and the next general election. This is not just statistical but logical. After all, unemployed people are likely to vote—and to vote for the opposition candidate.

In the past 100 years, there have only been five one-term presidents: Hoover, Ford, Carter, George H.W. Bush and Trump. In all those instances, the unemployment rate was higher at the time of the re-election than at the time of the prior midterms. The unemployment rate at the time of the 2022 midterms was 3.6%. If the unemployment rate remains above 3.6%, that would support the expectation that President Biden would not be reelected.

Of course, this time may be different—and it could prove different in myriad ways with potential third-party candidates and the like. In any case, the unemployment rate and the job market will likely remain critical.

Global Opportunities

While there are some risks of global economic weakness through the midyear, a weaker dollar and falling interest rates are poised to give emerging markets a boost in the second half of 2024 and in 2025. This is likely to present improved opportunities for exports. Just don’t expect the Exports series in the MHI BAI to fully reflect those dynamics. The series has been persistently weak, almost regardless of global trade dynamics. Instead, watch the line item in the U.S. GDP report for Exports to get a boost and add more growth to the bottom line of overall U.S. GDP as the greenback weakens further.

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