Economic forecasters see local climate as ‘strong, but uncertain’ in 2024

After years of financial shocks and ongoing government spending to offset the impacts of the Covid-19 pandemic, financial analysts expect 2024 to be less volatile but still somewhat uncertain for the nation and state. The good news for the Austin area is strong growth trends and the state’s unexpected budget surpluses in recent years will provide a cushion for local municipal budgets, even if a small recession takes place late in the year.

Those were some of the forecasts offered last month at the Austin Chamber of Commerce’s economic outlook event, which put banking and municipal finance leaders in front of the area’s biggest business leaders.

Marc Dizard, senior vice president and chief investment strategist at PNC Bank, said at the federal level efforts to reduce inflation have been largely successful and may even result in a rare “soft landing” that brings price and wage growth to 2 percent without causing the economy to contract. What’s most likely, he said, is a total loss of around 1 percent of national gross domestic product into 2025.

“​​When it comes to GDP and output … it’s actually still positive for 2024, but it is declining and heading into 2025. A result of that, what we forecast to be a result of that is unemployment is going to be ticking higher. There is case scenario in which we don’t get a recession, but that doesn’t mean robust dynamic growth. That just means spurting by a little bit and still having positive growth.”

Dizard said questions on possible slowdowns in Europe and a return of energy prices – both of which are impacted by wars in Ukraine and Israel – are two variables causing ongoing uncertainty for the U.S. economy.

Closer to Austin, historic state surpluses and federal stimulus money that can be held for another year or more mean local budgets are flush.

Tom Schuette, senior vice president and research analyst at PIMCO Municipals, said the state’s financial picture is healthy, though it’s unlikely to see more “absurd” revenue growth of nearly 20 percent as was the case in recent years. He said to expect flat revenue growth for the state this year after “unsustainable sugar highs that we saw in 2021 and 2022.”

While local financials are strong – Austin ended last year with a $68 million budget surplus, and total reserves of about $340 million – Schuette said inflation’s effects on labor costs will continue to eat into the budgets of capital projects such as Austin’s Project Connect transit system.

“Certainly in Austin, we’ve seen this with mass transit planning or some of the other bigger-ticket projects in the area,” he said. “Getting cost certainty is very tough right now.”

Away from municipal projects, private industry expectations for the Austin area have been robust. The real estate technology company Zillow said the local property market, which drives a substantial part of the local economy, is one of the most healthy in the country and likely to rebound from an “ice cold” state in 2023.

Schuette said population growth and the overall performance of the local economy make Austin the goal of most state or local government planners who came into 2024 with much more uncertainty.

“Almost everybody nationwide would probably trade places with Texas in general and Austin metro in particular. In terms of the challenges and problems that we face … I think you look at the problems that confront this region and state with a high degree of envy,” he said. “Growth certainly creates problems and challenges, without a doubt. It also obviously helps a lot. Texas, the latest numbers I saw, has added over one and a half million people just into 2020 census.

“This population growth has been an amazing tailwind for a state and its local governments that are heavily dependent on property taxes and sales taxes. And that growth in that tailwind helps these revenue sources.”

Photo made available through a Creative Commons license.

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