2024 – how different will it be to 2023?

How might 2024 differ from the geoeconomic turbulence of 2023? Dr Linda Yueh, who recently spoke on SiriusXM Business Radio, noted a different start to 2024 for the global economy.

“The business cycle appears to be turning, although we need to be very vigilant about another shock and that is why it is more important that one is prepared for the possibility that things may not be that smooth. Inflation has, for example, inched up in December, not just in the US but also in the UK and in continental Europe, so there is one early upset in that respect.”

She also addressed the December figures that showed slowing retail sales in the UK.

“Inflation has inched up and that’s partly why retail sales are weak, because there are still a lot of cost issues for consumers. However, markets are betting that the Bank of England can’t keep rates as restrictive as they currently are because of weak domestic consumption.”

“What the current data is highlighting is that the UK has this particular challenge, where if you do have weak growth, markets would expect you to cut rates, but then as inflation inched up in December, it has raised the spectre of whether inflation is going to be stubborn for longer.”

This, says Dr Yueh, is why there has been such considerable focus on salaries in the UK. “Wages have been stubbornly high, growing at 6.5 per cent, which is more than two percentage points more than it is in the US. This is one of the big concerns for the UK economy. It is called the ‘second order effect’, with the first being headline inflation, and then thereafter generates cost increases for what is predominantly service sector economy.”

Addressing the content of Fed Chair Jay Powell’s Jackson Hole speech in August last year, Dr Yueh notes that he focused on the different components of wage growth. “[Powell’s speech gave emphasis to why] to why we should look at personal consumption expenditures (PCE) data, and services inflation and also core inflation figures. In the UK, in a recent meeting with the Bank of England’s deputy governor, Ben Broadbent, I  learned that wage growth is the issue that the BOE is watching closely. In sum, wage growth is where one sees stubborn inflation, which is proving the same on both sides of the Atlantic.”

“The simple way to think about it is through tracking its effects – you have your official measures, such as the US Bureau of Labor Statistics (BLS), but it is difficult to get timely figures. However, if you look at job postings you can begin to develop an accurate picture, or at least timely indicators of a trend.”

For the full interview with Dr Yueh, click here