Outlook: What Will Shape Rural America’s Economy In 2024
December 14, 2023 The U.S. economy has remained remarkably steady despite an unrelenting series of shocks over the last three years. America’s economic resilience was again on display throughout 2023, as the Federal Reserve continued the most aggressive round of interest rate hikes the country has seen in more than 40 years. Steadfast consumer spending has fueled the economy through much of the recent adversity. However, lingering high prices are expected to take a bigger toll on the economy in 2024, according to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange.
The CoBank 2024 outlook report examines several key factors that will shape agriculture and market sectors that serve rural communities throughout the U.S. Here are a few takeaways:
Global Economy: Growth Rates Will Fall in the Era of Deglobalization
The decades-long era of free trade agreements was a rousing success for global economies. Since 1990, global trade has increased more than 400% and global GDP has increased by 500%. During the heyday of free trade (2000-2018), global GDP grew at an average of 5.4% annually. But those days are over as the ideological pendulum has swung towards economic protectionism and political isolationism. Global growth in 2023 is estimated at around 2.5% and the consensus is for a continued slowdown in 2024. China’s economic growth rate has leveled off considerably. Business plans must account for the reality of permanently slower global economic growth moving forward.
U.S. Economy: Consumer Sentiment More Important than Economic Data
Key indicators point to the strength of the U.S. economy. Headline inflation has plummeted to 3.1%, the unemployment rate remains below 4% and inflation-adjusted wages are growing. However, large swaths of U.S. consumers remain anxious about their financial situations given high grocery prices, skyrocketing mortgage rates and other inflationary pressures. While grocery inflation is currently running at about 2%, the price of food at home has risen by 25% in the past three years. Consumer spending makes up almost 70% of the economy and consumers who are worried or angry will hold back on discretionary spending. Inflation-adjusted retail spending has fallen in 10 of the past 12 months, a trend that could carry into 2024.
U.S. Government: Vital Funding Bills Await Dysfunctional Congress
The difficulties of governing with slim majorities in both the House and Senate are in clear focus as 2024 draws near. While the House was ultimately able to pass a Continuing Resolution (CR) three days before a shutdown deadline, none of the 12 annual appropriations bills have been enacted. Until Congress can complete its work appropriating discretionary funding, little progress can be made on other major legislation like the Farm Bill. For rural America, there was a silver lining in the CR as it extended the current Farm Bill through Sept. 30, 2024. However, many reasons favor completing the new Farm Bill sooner rather than later. Cooperation will become increasingly difficult as the next election cycle begins.
U.S. Agricultural Economy: High Costs Spell Lackluster Profitability for Farm Incomes
Higher interest rates, a strong U.S. dollar and resiliency of the U.S. economy have weighed heavily on agricultural commodity prices. But the biggest problem for farm margins heading into 2024 is the elevated cost of production. While fertilizer prices have fallen, other costs of production remain stubbornly high. However, ag commodities will benefit from more upside price risk than down in 2024. Global grain and oilseed stock inventories are tight by historic measures and the northern hemisphere will likely have a strong El Niño weather pattern during the growing season for the first time since 2015. The dollar should continue its recent decline and global demand should return to its long-term growth trend.
Food & Beverage: Consumers Seek Value Amid Elevated Prices
Food and beverage companies’ financial performance has largely relied on price increases at the expense of volume sales over the last year. That approach is rapidly running out of road, and the limits of price elasticity will slow further increases. But elevated prices will continue to impact consumer shopping behavior, even amid pockets of deflation in certain categories and expectations of lower prices in other grocery goods in the coming year. Cost-saving behaviors including purchasing from lower-cost retailers, trading down to private label brands and value shopping are likely to linger. Modest volume growth in food and beverage is likely as several factors are improving, including inflation.
Communications: Despite Tailwinds, Broadband Buildouts Face Obstacles
The broadband market will continue to be a bright spot for the U.S. economy in 2024. The amount of public and private investment flowing into the industry is unprecedented as the era of digitization continues. However, telecom operators face several obstacles to executing their network buildout plans on time and on budget. The challenges include navigating the tight labor market, tightening credit conditions and managing through the permitting process, which has proven to be a bottleneck for fiber builds. The combination of low unemployment and a significant amount of network build work scheduled for 2024 means many contractors are already booked 6 to 12 months out.
To read the full report, visit CoBank.com.
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