Chief Economist Mark Vitner shared his outlook for 2024 at Hendersonville Chamber of Commerce’s Economic Outlook Breakfast, discussing the US economy’s resilience as well as inflation, highlighting job growth and residential and commercial real estate market trends.

In the second half of 2023, as well as so far in the first quarter of 2024, the US economy saw economic and job growth, and Vitner said this means a recession is unlikely. While the unemployment rate is low, manufacturing and construction industries are short on workers. 

With the median age for workers in these industries in their 50s, many more will be retiring in upcoming years, though many in the 65+ age range are still active in the workforce. Many women with young children who left the workforce during COVID have returned, but the workforce participation rate by men has decreased.

Job growth is especially notable in industries like government, healthcare, leisure and hospitality, and personal services. Though manufacturing has expanded in the area and makes up about 24% of the GDP, it only represents about 11% of the region’s workforce. The September employment numbers were revised downward; however, and indicate weaker job growth than previously reported.

Interest rates have been a concern for many, and Vitner said it is likely the federal government will cut rates in 2024, though they are likely to tread likely due to 2024 being an election year. Cuts may come in June, September, and December, and possibly into 2025. 

Wide swings in business activity and the economic indicators associated with that have been distorted. Declines of orders for goods at the beginning of the pandemic created negative growth, and the rise of supply chain issues over recent years created shortages, both of which leading to an overly-negative economic appearance. The Federal Reserve was much more involved in the treasury market during the pandemic as they attempted to normalize their holdings.

A large decline of leading economic indicators for 24 months nears the record continuous drop of 25 months, which indicated financial crisis. Though the GDP is currently rising, unusual during a time of decreasing LEIs, Vitner warns against the phrase “this time is different.”

In Henderson County, the job growth rate was 4.2% over the last year, the largest in the Asheville Metropolitan Statistical Area. Despite housing costs being 1.3 times more expensive than the median home nationwide, many people continue to relocate to the County, especially from areas like Florida and other areas where costs of living tend to be higher than WNC.

As people relocate, the area leans more closely to full employment, which means that everyone who wants a job has one. If full employment is achieved, the economy can only grow as fast as productivity growth, which as been approximately 1.5%. With growth in the labor force around 2/10 of 1%, if growth is faster than 1.7%, that puts pressure on inflation. The pressure seen bringing down inflation is likely to reverse a bit, and for the next six months, there are likely to be disappointments in inflation. 

Many people relocating to the area originated from large cities where they used mass transit for transportation. As these new residents now needed their own vehicles, pressure was put on car prices. Food prices, which have risen 1.2% over the last year, actually increased 21% since January 2021. The last time Vitner saw that same percentage of increase was a longer stretch of time, between 2008 and 2021. A major factor in this rapid inflation is the cost of labor for grocery stores rose 19.5% over the last three years, so those costs are being passed along to the consumer.

With core services being 60% of what the average consumer purchases, the cost of these are being largely driven by the labor force. The rate of inflation of services is 5.9%, but Vitner said those should be coming down. 

The Consumer Price Index has been distorted by healthcare costs among others. As millions of people received free vaccines, medical care costs were understated and seasonally adjusted in an attempt to find average trends. Seasonal adjustments on economic data impacts interest rates across the nation.

Increasing housing costs create affordability challenges, which has impacted migration of homeowners to areas with lower overall costs. Currently, the majority of homeowners, about 80%, have a mortgage rate below 5%. While the long-term average rate is higher, around 7%, few people are willing to give up their rates below 5%. With limited supply and high demand, home prices are still likely to increase by approximately 5% this year, mainly because so many people are unwilling to sell. Multi-family homes and apartment complexes are rapidly being constructed to help meet demand.

The commercial real estate market peaked in late 2021. Other than the office market, vacancies have risen modestly. Office vacancies, particularly in urban markets and in older buildings, has increased more sharply. In Q4 of 2023, the vacancy rate was 19.6%, leading to a price decrease of 17.6% year-over-year.

As an increased number of people have relocated to the Southeast, Vitner predicts an upcoming baby boom in the region, eventually leading to increased population as well as increased labor participation rates in years to come.