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Market Commentary: Things You Don’t See in a Recession

Stocks took a break last week, which was perfectly normal after a five-week win streak coming off the late-October lows. It is important to remember that stocks lead the economy, both on the way up and the way down. Various indexes are closing in on new all-time highs, and one of the most important indexes in the world is already there. The Dow Jones Industrial Average (on a total return basis) made a new all-time high last week. To us, this is the market’s way of saying the economy will continue to see solid growth next year.

  • Multiple signs indicate there won’t be a recession in 2024, which contradicts what many expect.
  • Stocks tend to lead the economy, and several major indexes are near new highs, which is a good signal for the economy.
  • The consumer remains strong and household balance sheets are in good shape.
  • The U.S. economy continues to add jobs at a strong pace, and the unemployment rate remains low, which are both uncommon during a recession.

People Are Traveling and Opening Their Wallets

A record $2.9 million people traveled by airplane over the Thanksgiving holiday, according to the TSA. (Even more impressive, more than 90% of flights were on time.) It is difficult to believe consumers are pulling back on spending and worried about the economy when they are traveling like never before.

But consumers aren’t just buying airplane tickets, they are spending on many other things, too. While people might complain about the economy, that isn’t stopping them from taking trips, driving new vehicles, or updating their homes. Here’s an insightful chart that shows consumption is still running above the pre-COVID trend. That doesn’t look like a recession to us.

Consumers Are in Much Better Shape Than Financial Media Suggests

We frequently hear about how badly consumers are doing and that they will be tapped out soon. However, the data shows that isn’t the case. Would you believe real incomes are at an all-time high? Given consumers make up close to 70% of the economy, this bodes well for continued spending.

Inflation is also making headlines, and it is true that most products and services cost more than they did a few years ago (in many cases, a lot more). But we rarely hear that incomes are up, too, and have been climbing more quickly than prices. The table below shows that incomes have risen for most people at a faster pace than inflation over the past year.

Consumer Balance Sheets Appear to Be the Best They’ve Ever Been

Balance sheets for households overall are much better than they were before the pandemic and may be in the best shape they’ve ever been. While debt is higher in places, net wealth has been climbing. The improvement in housing prices has quietly created enormous wealth, while stocks have had a tremendous run despite the setback in 2022. Those who have owned a house and some stocks over the past several years have likely substantially increased their overall net worth.

The table below shows that assets are as high as they’ve ever been, while liabilities are near the same levels they’ve been for decades. We broke this down as a percentage of disposable income to keep it consistent, but it tells a story not often told and suggests no recession is coming in 2024.

Job Growth Remains Strong

Lastly, the employment backdrop remains very strong. In fact, another 199,000 jobs were added in November, above expectations for approximately 180,000. Workers returning after the end of the autoworkers and Hollywood strikes provided a boost, but the three-month average is a 204,000 gain. For perspective, job growth averaged 163,000 a month in 2019. The economy needs about 100,000-125,000 net new jobs a month to keep up with population growth.

The economy added nearly 5 million jobs last year and has added another 2.5 million this year. Yes, the number of jobs per month is slowing, but we expect continued growth throughout next year, which should support the consumer and suggests better-than-expected economic growth.