CNN
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If there was ever a time the state of business and the economy would seem to match the whirlwind year both CEOs (current and former) and entertainment powerhouses have had, 2023 might be it. Elon Musk rebranded Twitter as X (and users had strong thoughts). Sam Bankman-Fried was found guilty of fraud. Sam Altman was fired from OpenAI … and then re-hired. Taylor Swift and Beyonce boosted local economies through their concert tours.
Meanwhile, some economists had been bracing for a recession, discouraged by high consumer prices and not-so-great corporate earnings. As a result of Jay Powell’s effort to beat back inflation, the Federal Reserve’s lending rate is currently at its highest level in 22 years. Mortgage rates neared 8%. And yet, inflation has continued to cool after hitting a 40-year high last year. And companies have continued to hire and consumers have continued to spend. And we can’t forget ChatGPT, which exploded in popularity and has led experts and enthusiasts alike to question what the technology will mean for jobs across the globe.
To get a better sense of what the next year could bring, we asked several contributors to weigh in on how they’re thinking about 2024 as it relates to the economy, artificial intelligence and business. The views expressed here are their own.
Johnny C. Taylor, Jr. is president and CEO of the SHRM and author of “Reset: A Leader’s Guide to Work in an Age of Upheaval.”
As we enter 2024, the business landscape is undergoing a seismic shift, driven by the convergence of artificial intelligence, an increasingly diverse society and the need for a resilient global workforce.
AI is evolving from an explorative technology to an essential business driver at a critical time. Sliding productivity, labor shortages and wage growth have contributed to an unstable labor market, leading to economic uncertainty. A rise in labor costs can be especially problematic if not accompanied by a commensurate growth in productivity, draining profits or driving inflation.
Leveraging AI can free up time and energy for employees to concentrate on more valuable tasks at work, which will be crucial going into the next year as employers look to expand productivity without escalating relative labor costs.
However, it will be paramount for companies to mitigate risks associated with implementing and operating AI. Even with all the promise AI holds, it can inherit existing biases, jeopardize proprietary data or further propagate the digital divide if not used properly. Companies deploying AI in their workplaces should institute robust ethical frameworks, ensuring AI systems’ transparency, accountability and fairness.
Businesses will also face the challenge of a charged 2024 presidential election, which threatens to divide a fractured nation further. The call for civility in the workplace echoes against the backdrop of a contentious political climate. In this diverse society, finding common ground becomes crucial for a cohesive workforce and can help to foster collaboration. It will be imperative for companies to create inclusive workplaces where people feel they belong — and that starts with fostering mutual respect across the board.
Building a globally resilient and inclusive workforce equipped with innovative AI strategies will empower businesses to navigate the challenges and uncertainties of the coming year successfully.
Mark Zandi is chief economist of Moody’s Analytics.
Stock investors are on track for a great year. Returns for 2023, including the increase in stock prices and dividends, are on track to be near 15%. This is even better than I anticipated at the start of the year.
But don’t count on gains like this next year, or anytime for the foreseeable future. A prudent planner should expect gains consistent with long-run historical returns, which are closer to half of what we’re looking at right now.
The economy has avoided a widely anticipated recession and investor relief is powering stock prices higher. A year ago, the consensus (which didn’t include me) was that to quell painfully high inflation, the Federal Reserve would need to jack up interest rates until employment fell and unemployment surged.
But that’s not what happened. Instead, inflation receded as the fallout from the pandemic faded, including supply chain and labor market disruptions, and the impact of the Russian war in Ukraine on oil and food prices has abated. The Fed has stopped raising interest rates and once policymakers are sure inflation is closing in on their target, they will begin to cut rates. That will be the catalyst for the next meaningful move higher in stock prices, although it likely won’t come until well into next year.
However, any rally in stock prices will be limited by high valuations. Stock prices are high compared with corporate profits, the ultimate source of a stock’s value. This is especially so for a few high-flying technology stocks that are being propelled by the promise of artificial intelligence (think Microsoft and Nvidia). But the rest of the stock market isn’t cheap either.
Of course, forecasting stock prices is an intrepid affair. Prices could end up rising more if the AI euphoria is more real than hype. And prices could be weaker if inflation proves more stubborn and it takes longer for the Fed to cut rates or even forces policymakers to increase them again.
This heightened uncertainty argues for not trying to time your stock investments or for having a short-term horizon. Best to consistently invest with an eye to the long-long run. And don’t expect the outsized returns of the last year to continue. They won’t.
Dana Peterson is chief economist at The Conference Board.
Renewed union influence in tight labor markets may keep wages elevated into 2024 and beyond.
Rapid wage growth amid rampant labor shortages were key factors that spurred US inflation during the pandemic. As workers quit low-paying jobs for more lucrative ones, and businesses bolstered compensation to attract and retain workers, wages surged to levels not seen in decades. Higher wages, low interest rates and excess savings from stimulus checks helped fuel consumer spending that further stoked inflation. Thanks to higher prices, households saw less bang for their extra bucks, and the Federal Reserve responded with a series of interest rate hikes that raised the federal funds rate to a 22-year high.
Post-pandemic, cooling business demand for labor is helping to deflate the wage bubble. This is evident in fewer job postings and a smaller number of hires — apart from industries experiencing labor shortages, like health care, leisure and hospitality, government and certain types of manufacturing. Many industries with labor shortages require in-person work. Industries not suffering labor shortages are seeing slower wage growth.
Union membership is at an all-time low of 10% — half of what it was 40 years ago. But heavily unionized industries — like construction, manufacturing and health care — continue to see strong wage increases, which is keeping overall wage growth elevated relative to 40-year norms.
Ongoing worker shortages are due to labor supply constraints caused by increasing baby boomer retirements and low birth rates. Unions can negotiate better compensation packages when the availability of skilled workers is slim. Higher wages raise input costs for firms, which pass that burden on to customers.
With retirements poised to continue, labor shortages and the higher wages that accompany them will likely persist. Organized labor will play a vital role in locking in pay increases for the next few years for unionized industries. While this is more money in the pocket for some workers, it likely also means higher prices at the checkout counter and one reason for the Fed to keep rates higher than many expect.
Desmond Lachman is a senior fellow at the American Enterprise Institute. He was a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
In 2008, the Federal Reserve was caught flatfooted by the subprime mortgage loan crisis and housing bust that triggered the Great Recession. Today, the Fed appears to be making a similar mistake.
It keeps insisting on the need for high interest rates for longer to defeat inflation, even at a time when there are clear signs of major trouble brewing in the commercial real estate sector. That trouble is all too likely to lead to a wave of regional bank failures by the middle of next year that could precipitate another economic recession.
It would be a gross understatement to say that the Covid pandemic has upended the commercial real estate sector. It has done so by permanently changing work and shopping habits; no longer do employers believe that their employees need to work from the office on a full-time basis, and no longer do people need have shop in the malls.
As a result, office vacancy rates have skyrocketed nationally to more than 16% — a level exceeding the 2008 peak. This, together with high interest rates, makes it difficult to see how property developers will manage to roll over the $1.5 trillion in property loans due over the next couple of years.
Earlier this year, we had a regional bank crisis centered on Silicon Valley Bank and First Republic Bank. Next year, a wave of commercial property loan defaults has the potential to cause many regional banks to fail, thereby precipitating an economic recession. When that occurs, the Fed will be forced to make a sharp U-turn to support a flailing economy. It will do so by slashing interest rates and by shifting from a policy of quantitative tightening to one of easing.
Savita Subramanian is head of US Equity & Quantitative Strategy at BofA Securities.
Despite a resilient US economy this year, corporate earnings were in a recession, posting three straight quarters of negative growth since the end of 2022. Bearish investors point to weak demand, waning pricing power, still high wages, a fast rise in interest rates and a cooling economy as reasons to be cautious. But we at BofA Global Research are more sanguine. Profits have begun to recover in the third quarter of this year for companies in the S&P 500, and we expect continued earnings growth into 2024.
Why? For starters, a survey of our fundamental analysts reveals broad expectations for what some have defined as “goldilocks”: decelerating but not declining prices, and higher margins where continued wage inflation is offset by productivity gains and falling costs elsewhere.
Furthermore, Corporate America has adapted by cutting costs and taking advantage of low interest rates over the past decade to lock in long-term debt at attractive rates. We now see leaner cost structures and a renewed focus on efficiency after years of having it easier with limited wage, input cost and interest rate pressures.
Companies’ renewed focus on efficiency should not surprise us. Periods of prolonged wage inflation have historically incentivized companies to spend on measures that allow them to do more with fewer people, whether it’s by streamlining processes or by automating rote, repetitive actions (like making trading electronic, automating fast food line cooks or computerizing call center operators).
It is also dangerous to underestimate the appetite of the US consumer, especially today, where 85% of homeowners locked in mortgages at low fixed rates and are benefiting from rising rates via higher returns on cash balances. Jobs are the factor to watch: Consumers tend to spend until they lose their source of income. Real wage growth is now positive (a key driver of consumption), and widespread layoffs are less likely given the structural tightness of the US labor market.
Next year, we expect mid to high single-digit earnings growth for large US public companies despite a potential economic slowdown. Earnings usually trough alongside GDP (give or take a few months), which BofA economists expect to slow next year, but there are exceptions. Stabilizing goods consumption and moderating services consumption following the massive shift from goods to services post-Covid could drive corporate earnings (more tied to goods) to outpace GDP growth (more tied to services) next year.
Daniel W. Linna Jr. is a senior lecturer at Northwestern University in the law school and computer science department of the engineering school. Previously, Dan was an equity partner in a large law firm and a developer, IT manager and consultant.
In 2024, organizations and individuals will learn even more about how best to leverage AI’s significant capabilities.
General purpose AI tools like ChatGPT will augment many tasks and improve efficiency. But the most significant advancements will come from domain experts designing and developing AI systems that are focused on specific problems. For example, legal experts are developing conversational AI systems that provide guidance to businesses and individuals for specific legal challenges, such as contracts and disputes.
Businesses will face massive pressure to adopt AI tools to keep pace with competitors. But simply adopting and using AI tools will not suffice for the long term. Businesses will need to invest in AI research and development now to begin the process of transforming their products and services, or risk falling behind as their market changes dramatically in the future. Companies will not distinguish themselves by the technologies that they use, but how they design and use AI systems strategically to amplify their strengths and capture opportunities in their markets.
The most successful organizations will train and empower all employees to use AI, not limit it to a select few who are predetermined to benefit. Employees who are closest to the work will find ways to drive innovation forward.
Individuals will use AI to automate and augment many tasks at work and in their personal lives. For example, AI will help to digest emails and draft responses rapidly. Better yet, chatbots, AI assistants and other AI systems will replace the deluge of unstructured emails that are too often used to manage work and personal tasks.
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Individuals who benefit the most will be those who invest in training, taking advantage of free and low-cost online education to learn about how AI systems work at a functional level.
In the next year, unwarranted hype about AI will become more evident. For example, we are many breakthroughs short of anything approaching artificial general intelligence — machines that can perform any intelligent task that humans can perform. But make no mistake, today’s AI is quite capable, particularly when AI systems are developed to solve specific problems.
Many of these predictions are easy because they are the things that organizations and individuals should decide to do. It is up to organizations and individuals to make it happen in 2024.