As the year comes to a close, the latest report from the Congressional Budget Office (CBO) paints a bleak picture for the US economy in 2024. Released on December 15, the report projects a rise in the unemployment rate from 3.9 percent to 4.4 percent by the end of the year, leading to millions of Americans losing their jobs.

The CBO attributes this expected deterioration in economic conditions to several factors. Weaker consumer spending, lower nonresidential investment, and reduced exports are projected to outweigh the positive effects of higher government spending and lower taxes. These factors align with the current trends in the labor market, as signs of tightening were already evident in December.

The first week of the month saw approximately 202,000 new claims for unemployment benefits filed, while around 1.87 million workers were still receiving unemployment benefits. These figures indicate a scarcity of job opportunities, further reinforcing the CBO's projections.

While not as pessimistic as the CBO, the Federal Reserve also predicts a challenging outlook for the US economy in 2024. It anticipates a slowdown in real GDP growth, forecasting it to reach 1.4 percent in 2024 before bouncing back in the following years. The Fed expects the unemployment rate to climb to 4.1 percent by the end of 2024— a lower estimate compared to the CBO's projection.

The CBO report suggests that the Federal Reserve may respond to the weakening economy and falling inflation by cutting interest rates sometime after March 2024. The report estimates a decline in the inflation rate to 2.1 percent in 2024, aligning it more closely with the Fed's target of 2 percent.

This downward revision in the CBO's economic outlook from its previous report in February highlights slower-than-expected growth in consumption, investment, and exports. However, experts like Jeffrey Buchbinder, the chief equity strategist at LPL Financial, suggest that if a recession does occur in 2024, it is likely to be mild. Buchbinder points to the strong fundamentals of the US economy and the absence of any major shocks or imbalances.

As we enter the new year, policymakers and economists will closely monitor the evolving economic landscape, seeking to mitigate the negative effects of rising unemployment and strive for stability and growth.