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Dave Ramsey is the founder of Ramsey Solutions and a popular financial personality. In an early blog post for 2024, he outlines the six economic indicators that Americans should watch out for so they can better plan their finances this year.
While Ramsey doesn’t want his followers trying to become economists or overreacting to various indicators, he does feel that by knowing the state of the economy, it can help you make sound financial decisions. For 2024, you should keep an eye on these six indicators, according to Ramsey.
Stock Market
The stock market is known as a leading indicator, as it tends to look ahead and react to how the economy will actually be performing a few months in advance. In other words, a precipitous and/or prolonged fall in the market could be a warning that the economy is softening.
But Ramsey stresses that a falling stock market shouldn’t trigger panic, just like a rising one shouldn’t make you feel euphoric. Instead, continue to save for retirement and look at the long term regardless of what the market is doing over the short term. However, you can use a falling stock market as an indication that you might want to beef up your emergency funds — and make sure your job is secure as well.
Housing Market
Ramsey’s assessment of the housing market is that things will get a bit harder for sellers but perhaps a tad easier for buyers. While he anticipates home prices will continue to rise, it will be at a slower rate, and more inventory will come back into the market.
Combined with slowly falling mortgage rates, this should give homebuyers more options. If you are planning to buy a home, Ramsey strongly believes in a 15-year mortgage vs. the more popular 30-year option, as you will save a large amount of interest over the course of the loan and be out of debt faster.
Interest Rates and Inflation
Interest rates and inflation tend to go hand in hand. As inflation skyrocketed to 9.1% in mid-2022, the Fed aggressively raised interest rates to slow down the economy and keep inflation in check. As inflation has now fallen to 3.1%, the Fed has paused its raises, and many anticipate rate cuts in 2024.
While falling inflation should help consumers manage their budgets a bit more easily, Ramsey stresses that you should always avoid taking out loans whenever possible, even if rates are falling. While he supports the use of a 15-year home mortgage, he says home equity loans and car loans are always a bad idea.
Unemployment Rate
In terms of economic indicators, Ramsey says the unemployment rate is one of the most transparent, as it provides direct, actual information about hiring in America. When business is booming and companies are growing, they have the capital to hire more people. When they start laying people off, however, it’s a clear-cut sign that things are slowing down.
Ramsey cautions that as the unemployment rate has risen from 3.4% at the start of 2023 to 3.9% as of Oct. 2023, things may be slowing down a bit. Some economists even feel that further slowing, and even a mild recession, are on tap for 2024, which could cause some short-term fluctuation in your investments.
Ramsey reiterates that regardless of how the market is performing, you should always stick with your long-term investment plan and be ready for some bumps along the way.
Consumer Confidence
Consumer spending makes up roughly 70% of the U.S. economy, so when Americans are not confident about their money, things can slow down. Consumer confidence slowed a bit in 2023, and it may contribute to a possible recession in 2024.
Ramsey’s concern is that consumers struggling with still-high inflation and interest rates may be more compelled to put purchases on credit cards, which can be the path to financial ruin. As credit card balances exceeded $1 trillion in America for the first time in 2023, his concerns are valid. Ramsey wants his followers to use this time to focus on their budgets and avoid debt at all costs.
Gross Domestic Product
Gross domestic product (GDP) refers to the total of all goods and services used in the economy as a whole. While it’s the most direct measure of how the economy is actually performing, it’s actually a “rear-view” indicator.
By the time the data regarding the U.S. GDP has been reported, it’s a matter of historical fact. Generally, when GDP falls for two consecutive quarters, it’s considered a recession. However, past GDP data can only confirm that a recession has occurred, not that one is coming in the future.
The St. Louis Fed anticipates that U.S. GDP will be 1.3% in 2024, indicating a slowing economy but not a full-blown recession. However, this is just an estimate, and Ramsey suggests keeping an eye on data as it is released.
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