Our economic outlook for the United States

June 25, 2024

Our outlook for year-end 2024


Economic growth,
year over year

Stronger-than-expected labor supply and productivity gains should continue to support growth before gradually subsiding. After a strong start to the second quarter, growth appears to be moderating. Consumer spending, which accounts for about two-thirds of GDP, held up in the first quarter, particularly on services. Still, we’re monitoring softer gains in real disposable incomes since the start of the year owing to sticky inflation.


Core inflation, year over year

We anticipate that core inflation will remain uncomfortably elevated but begin to gradually decline on a monthly basis. We expect shelter and other services prices to remain sticky throughout the year. We don’t foresee core inflation falling to 2% until the end of 2025. Elevated wage growth since the start of 2024 appears persistent and likely to keep services inflation heightened throughout the year. Goods prices, on the other hand, should remain neutral or modestly deflationary amid supply normalization.


Monetary policy rate

Continued economic growth, labor momentum, and stubborn inflation are likely to leave the Federal Reserve without the confidence it needs to cut interest rates this year. Even if economic data were to make the Fed more dovish, we believe it would be difficult for the Fed to achieve more than one rate cut in 2024. We anticipate that the Fed will need to see inflation readings near 2.5%–2.6% year over year to begin easing policy. We assign a low probability to inflation reaccelerating enough to warrant a further rate increase.


Unemployment rate

Job growth has broadened across private industries year to date, a bullish sign for the labor market. Strong productivity growth and low-income labor supply through immigration have reduced immediate reflationary risks from wage dynamics. However, if wages don’t moderate in the second half of the year, those risks will grow.

What I’m watching

Cyclical employment and an economy with room to run

In the last two years, the three sectors that represent noncyclical employment—government, health care, and education—have created about half of the new jobs in the U.S. despite representing just 30% of the labor market. Government employment is less sensitive than other industries to economic downturns as the sector is an attractive destination for workers in such periods. Spending on health care and education is nondiscretionary, so employment in these sectors is typically agnostic to the economic environment. Meanwhile, cyclical employment—the rest of the labor market—typically rises and falls with economic conditions. Though cyclical employment has moderated since 2022, it continues to grow, an encouraging sign that the economic expansion will likely continue and the labor market will remain strong throughout 2024.

Adam Shickling

Adam Schickling,
Vanguard Senior Economist

Notes: Employment growth is the year-over-year change in the three-month moving average. Noncyclical employment represents education, government, and health services, industries that historically have had little correlation with the broader economy. Cyclical employment represents all other industries, such as but not limited to finance, professional and business services, construction, manufacturing, and wholesale and retail trade.

Sources: Vanguard calculations using data from the St. Louis Federal Reserve FRED database as of June 13, 2024.

What I’m watching

Healthy balance sheets remain a support for consumers

After a buildup in liabilities ahead of the 2008 global financial crisis, households have deleveraged and growth in assets has outpaced growth in liabilities over the last decade. Although this positive gap has moderated from its pandemic-era surge, it remains elevated. We expect healthy balance sheets and a steady labor market to continue to support consumer spending in the coming quarters, though at a more modest pace than in recent quarters.

Rhea Thomas

Rhea Thomas,
Vanguard Economist

Notes: The chart depicts the cumulative percentage growth in household assets and liabilities since 1990.

Sources: Vanguard calculations using data from the Federal Reserve as of June 11, 2024

What I’m watching

The role of shelter in keeping inflation sticky

Shelter, a component of services inflation that comprises 45% of the core Consumer Price Index and 17% of the core Personal Consumption Expenditures index, is the primary cause of sticky inflation and a factor in our view that the Fed will find it difficult to cut interest rates this year. We expect a shortfall of 1 million single-family homes at year-end 2024, owing partly to a “mortgage lock-in” effect whereby homeowners are reluctant to sell when that means giving up low fixed-rate mortgages. We foresee shelter inflation falling to 4.8% year over year by the end of 2024, keeping inflation solidly above the Fed’s comfort zone.

Ryan Zalla

Ryan Zalla,
Vanguard Economist

Sources: Bureau of Labor Statistics Consumer Price Index data accessed via Refinitiv on June 6, 2024, and Vanguard forecasts.

Notes: All investing is subject to risk, including the possible loss of the money you invest. 

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