S&P Global U.S. Forecast Update May 2024

May 15, 2024

By Delaney O’Kray-Murphy, EBRC Research Economist

First rate cuts now projected in December, six months later than in the April base forecast

S&P Global have released their May 2024 forecast update for the U.S. The current forecast is based on the following assumptions:

The forecast encompasses the Fiscal Responsibility Act of 2023, along with current corporate tax laws and personal income tax policies. Scheduled Social Security and Medicare benefits are paid beyond the projected exhaustion of those funds. The recently passed foreign aid package provides $95 billion of budget authority to respond to the situations in Ukraine, Israel, and the Indo-Pacific region, a quarter of which is projected to boost US GDP.
The Fed is assumed to maintain its policy rate at a range of 5.25%-5.50% until December. Starting in December, the Fed cuts its policy rate six times in 2025, eventually reaching 2.50%-2.75% by mid-2026. The Fed’s balance sheet declines by about one-third.
Starting with the April forecast, immigration growth is assumed higher than what is described by the Census. The faster growth is more closely aligned with the new estimates from the Congressional Budget Office.
Tariffs and trade agreements between the U.S. and China since 2017 are assumed to continue.
Real foreign GDP contracted by 4.7% in 2020. Growth rebounded to 5.6% in 2021 and then decelerated to 3.4% in 2022. The forecast calls for it to slow in 2023 to 2.0%, firm in 2024 at 2.0%, then rebound to 2.5% by 2026.
The price of Brent crude oil rose to $113 per barrel in the second quarter of 2022, up from $80 per barrel in the fourth quarter of 2021. The price is forecast to drop unevenly to $79 per barrel in 2026, rebound to $83 by 2027, then rise roughly at the rate of inflation.

The baseline forecast (summarized here) is assigned a 55% probability. The pessimistic scenario is assigned 25%, and the optimistic scenario is assigned the remaining 20%. These probabilities are altered from April, with the optimistic scenario increasing by 5% and the pessimistic scenario decreasing by the same amount.

After increasing by 1.9% in 2022 and 2.5% in 2023, the baseline forecast calls for real GDP growth to remain at 2.5% in 2024 and slow to 1.6% in 2025. On a basis quarterly, the forecast calls for real GDP to increase through 2033 (no recession).

Headline inflation spiked in 2022 to 8.0%, then decelerated to 4.1% in 2023. It is forecast to slow again to 3.3% in 2024 and 2.2% in 2025.

The unemployment rate peaked at 8.1% for the year in 2020 but fell to 5.4% in 2021 and again to 3.6% in 2022. It remained at 3.6% in 2023 and is forecasted to rise to 3.8% in 2024 and 4.1% in 2025.

Nonfarm payroll jobs nationally dropped by 5.8% in 2020 but rebounded with growth of 2.9% in 2021 and 4.3% in 2022. Jobs rose by 2.3% in 2023 and are forecast to slow to 1.7% in 2024 and 0.6% in 2025.

Housing starts surged in 2021 to 1.61 million units. Activity remained strong in 2022 at 1.55 million. Starts fell to 1.42 million in 2023 and are forecast to decrease slightly to 1.40 million in 2024 and 1.39 million in 2025, as interest rate increases take a toll on housing activity.

Exhibit 1 summarizes the May 2024 forecast from S&P Global. Exhibit 2 shows the April 2024 projections and Exhibit 3 shows the difference.