January 9, 2024
Small business optimism rose 1.3 points in December to 91.9 after having fallen 0.1 point in November. These levels are roughly in line with the low point in the March/April 2020 recession which seems excessively low to us. They are well below the 40-year average so-called breakeven point for this series which is 98.0.
NFIB Chief Economist William Dunkelberg said, “Small business owners remain very pessimistic about economic prospects this year. Inflation and labor quality have consistently been a tough complication for small business owners, and they are not convinced that it will get better in 2024.”
Certainly the demand side of the economy continues to expand at a moderate rate. But the combination of higher interest rates and the resumption of payments on student debt should produce slower growth in the first half of 2024.
We expect to see 1.8% GDP growth in fourth quarter. That will be followed by about 0.7% growth in the first half of 2024.
The core CPI is expected to slow to 3.2% by yearend which is a more rapid decline than expected, but that is still well above the Fed’s 2.0% target pace. It should continue to moderate to 2,9% by the end of 2024. The Fed does not expect the core rate of inflation to return to 2.0% until 2025.