Augustine (Gus) Faucher is senior vice president and chief economist of The PNC Financial Services Group, serving as the principal spokesperson on all economic issues for PNC.
Prior to joining PNC as senior macroeconomist in December 2011, Faucher worked for 10 years at Moody’s Analytics (formerly Economy.com), where he was a director and senior economist. He was responsible for running the firm’s computer model of the U.S. economy, edited a monthly publication on the U.S. economic outlook, covered fiscal and monetary policy, and analyzed various regional economies. Previously, he worked for six years at the U.S. Treasury Department, and taught at the University of Illinois at Urbana-Champaign. He was named senior vice president in March 2015, deputy chief economist in February 2016, and to his current role in April 2017.
Faucher is frequently cited in international, national, and regional media outlets including The Wall Street Journal and The New York Times. He has appeared on ABC World News, CBS Evening News, NBC Nightly News and Nightly Business Report, and is regularly featured on CNBC, CNN and Fox Business. In addition, he appears regularly on CBS Radio, NPR and Marketplace.
Webcast Transcript:
Hello, I'm Gus Faucher, Chief Economist for the PNC Financial Services Group, with an Economic Outlook for the fourth quarter of 2024. The U. S. economy remains in solid shape as we head into the end of 2024. In particular, the Fall 2024 results from PNC's Small Business Survey were some of the best in the more than 20 year history of the survey.
You can see here that small business optimism is remarkably high. About three quarters of small business owners are highly optimistic about their company's outlooks for the next six months, while another quarter are moderately optimistic. And less than one percent of small business owners are pessimistic about their company's prospects over the next six months.
An indication of how well they are doing and an indication of strong demand. This is true across industries and across business sizes. And we see that small business owners are also highly optimistic about the outlook to the national economy, the global economy, and their local economy. We're also seeing interest rates move lower toward the end of 2024.
In mid September, the Federal Reserve cut the Fed funds rate, their key short term policy interest rate, by one half of a percentage point, and we expect to see further cuts in the Fed funds rate later in 2024 and then through the 1st half of 2025. In response, we're seeing both short term and long term interest rates move lower.
This will reduce borrowing costs for consumers and businesses and support demand for consumer goods, like autos and appliances. And for business goods like investment in equipment, technology, and commercial construction, leading to solid economic growth in the near term and over the longer run. And we continue to see a historically strong labor market.
The unemployment rate, although it is up somewhat from last year when it was down to around three and a half percent, is still historically low and is just barely above four percent. This is consistent with the Federal Reserve's definition of maximum employment, and we continue to see strong job growth in 2024.
Over the last three months, the economy has added about 175,000 jobs per month on average. That's close to what is needed to keep up with long term growth in the labor force. And so with good job growth and rising wages, we see consumers continue to increase their spending. And then consumer balance sheets remain in very good shape.
The debt service ratio, the orange line on the right hand scale, is consumer debt payments on things like mortgages, car loans, student loans, credit card payments and so forth, as a share of after tax income. That fell substantially following the Great Recession and then dropped further with the pandemic with aid from the federal government and moratoriums on student loans and so forth.
It has come back somewhat since then, but remains below its pre pandemic level. Consumer debt burdens relative to incomes are historically low right now, which means that consumers have room to increase their spending. And we received some good news with recent revisions to personal income data from the Bureau of Economic Analysis.
The solid blue line on the left hand scale shows the personal savings rate, the share of after tax income that households are saving after recent revisions to this data. The dotted line is what we thought was going on with the personal savings rate before the revisions. The revisions show that consumers are saving more money now than we thought that they were a month or two ago.
And what that means is, is that consumers really don't have much of a need to increase their savings going forward, which would be a drag on consumer spending growth and overall economic growth. So household balance sheets are in good shape. We got some good news with the revisions. In addition, rising stock prices and rising household wealth means that consumers have more wealth, and that makes them more willing to spend as well.
So overall, the outlook for consumer spending, which makes up about two thirds of the U. S. economy, remains very solid at the end of 2024. Given this, we expect that the economy will hold up. Real GDP growth, the blue line on the left hand scale, will slow somewhat in late 2024 and in 2025 as the economy continues to feel the impact of the interest rates that the Federal Reserve was raising a year or two ago, but we'll remain solid and the economy will continue to expand.
We do not expect a recession in the U. S. economy anytime soon. And then as the Federal Reserve continues to cut interest rates later this year and in early 2025, those rate cuts will work to support economic growth, to support consumer and business borrowing, and will lead to a slight acceleration in economic growth toward the end of 2025.
Similarly, the labor market will remain very strong. The unemployment rate, which as I mentioned, is around 4 percent currently, it may go up a little bit over the next six, nine months or so to around four and a quarter or four and a half percent, but that is still very low on a historical basis is consistent with a good economy and a strong labor market.
And then we would expect to see the unemployment rate decline toward the end of 2025 and in 2026. It's a positive impact of those lower interest rates work their way through the U. S. economy. Thank you very much for your time. You can find all of our materials at pnc. com/economicreports and you can follow me on X, formerly Twitter, at GusFaucherPNC.
