3 min read
Jumping into a new year with your financial situation and your financial goals, can be scary - but they don’t have to be if you can take a look at the economy as it is going into the new year, to help you gauge the outcome and how to invest your money.
It’s normal to feel apprehensive or worried about the state of the economy going into 2024. In fact, about 75% of Americans said they were worried about just that. Despite not being able to control the economy, you can control how you look at it and what steps you take to help you invest and build wealth for your future.
Economic indicators - what to pay attention to
Economic indicators are the factors we look at to see how the economy is doing and help us predict where it's going in 2024. They are a way for you to gauge how the economy is doing, what to keep an eye on, and even help you make financial decisions going into 2024.
There are six major economic indicators to pay attention to:
- Stock market
- Housing market
- Interest rates and inflation
- Unemployment rate
- Consumer confidence
- Gross domestic product (GDP)
I'm going to cover each of these in detail so you can get a sense of where 2024 is headed as far as the economy is concerned, and go into the new year with financial confidence.
The stock market where you're able to buy and sell stocks, or part ownership, of a company, and these stocks or shares, help raise capital, by the public, for funding and expanding the business. It's essentially like saying "I want ownership of X% of the company, and I'll purchase it for $Y per %".
You can sell these ownership shares to make a return on your initial purchase, if you are able to predict and watch the value of that particular share. The goal of the stock market is to purchase shares of a company at a relatively low price and sell them when the price is higher to make a return on your investment of the original share purchase.
In 2023, the S&P 500 was expected to finish up 17%, which is better than average (10.13%), so what does that outlook look like for 2024? Well, it likely won’t be double-digits, but it’s expected to have a growth of 6 -12% by the end of 2024, depending on various analysts. So there is definitely a vision for healthy stock market growth in 2024.
The housing market has the ability to help you gauge consumer confidence as well as financial stability. Being able to look at trends in the housing market can help you make decisions, whether you're buying or selling a home, it's important to understand the direction the housing market is going in 2024.
As you’ve probably noticed, 2023 was the year in favor of the seller. However, in 2024 we may see a turn of the tables in favor of the buyer, with more newly listed homes popping up since November. That being said, the number of active homes on the market is not rising exponentially, so in 2024, if you’re in the market for buying a home, you’ll still have to be prepared and pretty quick with your plan.
Along with this, comes the price of homes, which is still growing but slower than average. So, the good news here is that the National Association of Realtors is predicting that home prices won’t rise above a 1% increase. With home price increasing, even slowly, mortgage rates are expected to stay relatively high for the time being, as in above 3%. In 2024, we’re likely to see mortgage rates lower, just slightly, to 6.1% by the end of the year.
Interest rates & inflation
Interest rates and inflation help predict two aspects of financial decisions. Interest rates show the cost of borrowing money and in turn spending habits of consumers. These rates are what it costs to borrow money from the bank for lets say a car or student loan. Inflation is how much of an increase we will see to actually purchase goods and services - this is like the cost of groceries in 2022 compared to the cost for the same groceries in 2023.
Right now, inflation has dropped to 3.2%, which is unfortunately, still above the target of 2%. That being said, this 3.2% did fall from 2022’s 9.1%, and is expected to drop again in the spring of 2024, hitting around 2.5% by the end of the year. This is predicted because inflation seems to be going in the right direction, so if inflation stays true to that trajectory, we will likely see that drop in interest rates by the end of 2024.
The rate of unemployment can tell you two things. If the unemployment rate is high, that means that there are a lot of people out of jobs and the economy is suffering because with people not earning an income, they aren't spending money. In comparison, a low unemployment rate means that a lot of people are working and earning and income, therefore a disposable income and are spending money.
Due to what I just mentioned with interest rates, the unemployment rate for 2024 is expected to rise, but not by much. In 2023 the unemployment rate hit 3.9% and by the end of 2024 it’s expected to hit 4.2%, which isn’t much of an increase and shouldn’t be cause for too much concern.
Consumer confidence can be chalked up to how everyone feels about the economy and the current state of it. How people feel about the economy directly affects whether they tend to spend money or keep it for themselves and save. If you think that money is going to be an issue in the near future, you try to hold on to what you have now, versus if you are confident there is going to be a constant flow of money and are therefore confident in the economy, you're more likely to spend what you have instead of save it.
2023 was a rough year for a lot of things, and because of this consumer confidence has dropped and many people are saying a recession is likely in 2024, two-thirds of consumers, to be exact. There are a lot of factors going into consumer confidence, and with over $1 trillion in credit card debt across Americans, collectively, it’s critical to get on a budget and start building your wealth, so you don’t fall back into debt and can continue to invest in your freedom accounts.
Gross domestic product
A simple way to look at GDP is the monetary value of the goods and services produced by a country in a year. When it comes to GDP, unlike the unemployment rate, the higher this number the better state the economy is in. When GDP is high, this likely means that employment is high and people have more disposable income.
The Federal Reserve has a goal of a “soft-landing” - to lower inflation without pushing the economy into recession. With GDP being at a high for the first three quarters of 2023, it’s expected to lower in 2024 and end at 1.3%, which is exactly what the Federal Reserve is predicting.
It's so incredibly important to understand these six economic indicators in order to advise your investment strategy and start your journey to building wealth and financial freedom. Diversification of your investment portfolios, understanding the risk of your investments, and keeping the investment outlook in mind when making financial decisions is imperative to financial health.
By looking at and analyzing the stocks and housing markets, interest rates and inflation, unemployment rates, consumer confidence and gross domestic product trends, you can accurately and effectively create investment strategies that work for you and your current financial situation.
There are a lot of factors and contributions that go into the economy and the investment outlook for 2024, but overall it’s predicted to be positive. The important thing is that you ensure you have a budget in place for the new year, continue to invest into your freedom accounts, and overall, keep an eye on updates to the economy in these categories to help keep you on track.
It’s okay and normal to be apprehensive about the economy in the new year, but these indicators will give you an idea of where the economy is heading and how to still be successful, financially, by keeping an eye on them.
Each of these indicators are intertwined and tend to affect each other - when one changes it has the potential to change the others, but the good thing is that the outlook for 2024 is consistently positive with nothing alarming, as far as predictions go. So, no better time than now to get your budget in check, stop using debt, and keep an eye on these indicators to help you fund freedom accounts, and invest to build your wealth in 2024.