Center for Applied Economic Research
Economic Outlook 2024: Summer Update
by
Dan Rickman
and
Hongbo Wang
Center for Applied Economic Research
Spears School of Business
Oklahoma State University
July 29, 2024
240 College of Business, Stillwater, OK 74078
Summary
The national economy appears to be settling into a soft landing in response to the Federal Reserve’s interest rate increases. The recently released report of an annualized first quarter US real gross domestic product (GDP) growth of 1.4 percent represents a dramatic downward shift from the strong growth in the second half of 2023. The rate of inflation based on the all-items Consumer Price Index (CPI) declined to 3.0 percent for the 12 months ending June 2024, after peaking at 9.0 percent in June 2022. Our baseline national forecast is that the Federal Reserve (FED) will begin lowering interest rates by December, possibly as early as September with continued favorable inflation reports. Based on the national outlook by S&P Global in July, annual real GDP growth is forecast to drop from 2.4 percent in 2023 to below-potential growth of 1.6 percent in 2024. Core inflation is expected to drop below 3 percent in the second half of 2024 on its path towards the FED’s target of 2 percent. Slowing growth in national economic activity is expected to spill over into Oklahoma. Total nonfarm wage and salary employment growth is forecast to slow from 2.9 percent in 2023 to 1.8 percent in 2024, with wage and salary income growth forecast to slow from 7.8 to 6.1 percent. Continued strong population growth is expected though in response to strong employment growth over the past two years.
National Economic Outlook
Following real GDP growth of nearly 5 percent in the third quarter of 2023 and 3.4 percent in the fourth quarter, real GDP growth fell to 1.4 percent during the first quarter of 2024 (Figure 1). With long-run trend growth in real GDP commonly believed to be about two percent, this marks a shift from above-trend growth to below-trend growth. S&P Global forecasts below-trend
0 1 2 3 4 5 6 7 8
19,500 20,000 20,500 21,000 21,500 22,000 22,500 23,000 23,500
1.4
-3 -2 -1
US GDP Growth
US GDP Level
Figure 1. US Real GDP ($2017) (Right axis-level in $billions). (Left Axis-annualized percent growth rate) (History through 2024Q1)
growth for the second half of the year. A driving force in the downward shift in economic growth is slowing growth in consumption expenditures, the largest component of real GDP.
Energy Outlook
As shown in Figure 2, both oil and natural gas prices dramatically rebounded from their pandemic declines before declining in 2023. In its current (July 2024) Short-Term Energy Outlook, the US Energy Information Administration (EIA) forecasts both oil and natural gas prices to increase slightly by the end of 2024. OPEC+ cuts in production are anticipated to exceed the announced targets, reducing global oil inventories. Reduced production this year underpins the forecast of an increase in the price of natural gas.
100 110
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
20 30 40 50 60 70 80 90
85.1
3.09
West Texas Intermediate (WTI) crude ($/barrel) Henry Hub Price of Natural Gas ($/mmbtu)
Figure 2. Energy Prices (US Energy Information Administration-EIA) (Left axis-WTI oil price $/bbl; Right Axis-Henry Hub natural gas price $/MMBtu)
As shown in Figure 3, the rebound in energy prices has modestly increased energy sector employment in both the state and nation. Oklahoma’s energy sector employment declined earlier and by a greater percentage than did energy sector employment nationwide going into the pandemic. The r ecovery in Oklahoma’s energy employment also has lagged that of the nation. By the end of 2024, national energy sector employment is forecast to rise to eighty-seven percent of its 2019 Q1 level, while Oklahoma’s is expected to only recover to sixty-three percent of its 2019Q1 level. According to Baker Hughes Inc., the drilling rig count in Oklahoma increased from a low of ten over two years ago to thirty-five last month. The number of drilling rigs had risen to seventy in the week of November 23 rd , 2023, before declining to the current level.
1.1
1
0.9
0.87
0.8
0.7
0.63
0.6
0.5
US Oil and Natural Gas Employment
Oklahoma Mining Employment Growth
Figure 3. Oklahoma and US Energy Sector Employment (2019Q1=1) (Source: US Bureau of Labor Statistics) (History through 2024Q2)
State Economic Outlook
Both national and state total nonfarm wage and salary employment now exceed their pre- pandemic peaks, with the nation’s employment having grown more (Figure 4). Because US employment initially declined more during the onset of the pandemic, its initial rebound in 2020 was much stronger than Oklahoma’s , with US employment continuing to grow faster in 2021. Oklahoma’s stronger growth since the end of 2022 has put it near the nation relative to their respective pre-pandemic levels. Corresponding to the slowing of overall economic growth, employment growth is forecast to flatten out in both the nation and state for the remainder of 2024. Oklahoma’s total nonfarm wage and salary employment growth from June 2023-2024 ranked eighteenth in the nation (not shown). The top five fastest-growing states in order of faster growth were South Carolina, Missouri, Nevada, Idaho, and Montana. The slowest five growing states in order of slowest growth were Tennessee, Oregon, Maryland, Hawaii, and Illinois. Among Oklahoma’s other neighbors, Arkansas (11 th ) and Texas (12 th ) grew faster, while New Mexico (23 rd ) and Colorado grew slower (24 th ) than Oklahoma.
0.88 0.9 0.92 0.94 0.96 0.98 1 1.02 1.04 1.06 1.08
US Total Nonfarm W&S Employment OK Total Nonfarm W&S Employment
Figure 4. Oklahoma and US Seasonally Adjusted Total Nonfarm Wage and Salary Employment (2019Q1=1) (History through 2024Q2)
Summary Tables of Key Economic Indicators
The economic statistics in Tables 1 and 2 reflect the forecasts of a national slowdown and moderation of inflation by S&P Global and slowing economic growth in Oklahoma. Accompanying the growth slowdown and moderation of inflation is an expectation that the FED will lower the federal funds rate by 0.25 percentage points in December. This would bring the federal funds rate to a target range of 5-5.25 percent. Reflecting a slowing economy, US real GDP is forecast to grow below its long-run (potential) rate throughout 2024. Oklahoma's real GDP growth is forecast to remain lower throughout the year as well. Both US and Oklahoma nonfarm employment growth are forecast to further slow in the second half of the year. Accompanying the slowing of real GDP and employment growth, personal income growth in both the state and nation will moderate. Based on both the consumer price index (CPI) and the core personal consumption expenditure (PCE) deflator, inflation will continue to move towards the FED’s target of two percent.
Table 1. Annualized Quarterly Growth in Key US and Oklahoma Economic Indicators (%): 2023Q1-2023Q4 (Last Historical Period: 2024Q2 for employment and unemployment; and 2024 Q1 for income, real GDP, and price indices) 23Q1 23Q2 23Q3 23Q4
4.16
3.30
4.69
3.99
Oklahoma Real GDP
2.24
2.06
4.86
3.40
US Real GDP
5.00
2.20
0.26
1.12
Oklahoma Nonfarm Employment
2.35
1.96
1.72
1.59
US Nonfarm Employment
7.21
2.27
4.09
4.68
Oklahoma Nominal Personal Income
6.81
4.02
3.86
2.83
US Nominal Personal Income
10.96 4.95
4.90
8.47
Oklahoma Nominal Wages and Salaries
9.07
5.93
6.43
1.98
US Nominal Wages and Salaries
3.09
2.88
3.31
3.65
Oklahoma Unemployment Rate (Level)
3.52 3.75 4.96 4.52
3.56 3.04 3.66 4.99
3.70 3.43 2.04 5.26
3.77 2.73 2.04 5.33
US Unemployment Rate (Level)
US Consumer Price Index
US Core Personal Consumption Deflator
Federal Funds Interest Rate (Level)
Table 2. Annualized Quarterly Forecast Growth in Key US and Oklahoma Economic Indicators (%): 2024Q1-2024Q4 24Q1 24Q2 24Q3 24Q4
2.39
2.54
2.20
1.97
Oklahoma Real GDP
1.41
2.10
1.55
1.42
US Real GDP
3.38
2.07
1.19
0.87
Oklahoma Nonfarm Employment
1.98
1.55
1.36
0.75
US Nonfarm Employment
7.48
4.34
4.50
4.94
Oklahoma Nominal Personal Income
7.00
4.56
4.87
4.82
US Nominal Personal Income
6.64
5.63
4.84
4.69
Oklahoma Nominal Wages and Salaries
5.55
5.55
5.23
4.41
US Nominal Wages and Salaries
3.49
3.36
3.46
3.55
Oklahoma Unemployment Rate (Level)
3.78 3.81 3.74 5.33
3.96 3.04 2.81 5.33
4.04 1.92 2.34 5.33
4.09 1.86 2.27 5.30
US Unemployment Rate (Level)
US Consumer Price Index
US Core Personal Consumption Deflator
Federal Funds Interest Rate (Level)
Risks to the Forecasts
There are many risks to the forecast. The Chinese economy continues to languish, reducing world economic growth. Unanticipated stubbornness in inflation in key sectors of the economy could cause the FED to delay reducing interest rates. Credit conditions associated with strains on bank balance sheets and higher borrowing rates could dampen consumer spending growth. S&P Global assigns a probability of twenty percent to its pessimistic scenario in which real GDP grows 0.4 percent instead of the baseline forecast of 1.6 percent in 2024. On the other hand, the economy could outperform expectations. The second quarter real GDP estimate released after the July forecast by S&P Global reveals a stronger-than-expected economy. The economy posted 2.8 percent quarterly growth in real GDP, exceeding the forecast by S&P Global of 2.1 percent. The growth was propelled by business investment in buildings and equipment and rebuilding of inventories. Consumption spending also rebounded from 1.4 percent growth in the first quarter to 2.3 percent in the second quarter. Continued stronger-than- expected growth could delay the FED’s policy switch to easing interest rates until 2025.
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