To start 2024, the U.S. economy remains resilient and recession risks have moderated. Following recent economic growth adjustments, S&P Global Ratings lowered its probability of recession in 2024 to 26% (see "Economic Research: Recession Risk Moderates But Growth Is Limited By Potential," Jan. 26, 2024). This compares with 34% last September. Inflation has receded but costs are generally higher across the board, which has pressured operating and capital budgets; effective budget management will be important to fiscal performance.

Federal stimulus funds and strong reserves have provided flexibility for many governments and not-for-profit entities to avoid issuing debt in a higher interest rate environment, but we expect this flexibility will be diminished in 2024. If interest rates are lowered as expected in 2024, debt issuance may accelerate.

All sector views are stable except not-for-profit health care, public power and electric cooperatives, and mass transit. Higher education has a mixed sector view, with lower-rated institutions and those with limited enrollment or financial flexibility facing more credit pressures (see graphic). The outlook distribution to start the year remains strong: 97% of outlooks are stable, 1% are positive, and 2% are negative.

We have published our 2024 credit outlooks for all key sectors. In each report, we provide insight on the key issues we are watching in the year ahead. Following is a look at highlights of these publications, with links to each report.

Full details of the sector views are available through our interactive dashboard, by clicking here:https://www.spglobal.com/ratings/en/research-insights/sector-intelligence/interactives/us-pf-outlook-2024. The below image is a preview.

U.S. States

Robust reserve positions and strong management controls will allow states to brace for slower economic growth and softening revenues in fiscal 2024.   States' credit fundamentals appear resilient, but fiscal 2025 budget discussions will likely center on managing increasing costs, waning federal support, and changes in tax policy potentially further straining revenues. "U.S. States 2024 Outlook: Credit Stability Endures In Unstable Times," Jan. 4, 2024.

U.S. Local Governments

U.S. local governments continue to enjoy financial stability that stems from federal stimulus distributed during the pandemic.   Despite elevated inflation and rising interest rates, ongoing credit strength has led to increasing revenues and improved reserve levels. However, if local or macroeconomic conditions prevent revenues from keeping pace with expenditure growth, management teams could be pressured to balance budgets while still addressing persistent issues requiring longer-term solutions, such as demographic changes and extreme weather. "U.S. Local Governments 2024 Outlook: Stimulus Shelters Governments In 2024; Preventing Long-Term Leaks Requires Fiscal Focus Now," Jan. 9, 2024.

Not-For-Profit Higher Education

Our view of the sector in the U.S. remains mixed.   Competition for students is intensifying, operating expenses are rising, and schools are facing budget pressures, but these hurdles aren't affecting all colleges and universities equally. Our sector view is negative for less selective, more regional institutions without financial flexibility; we expect they will face significant credit stress in 2024. However, our sector view is stable for institutions with strong demand and financial resources that are better equipped to manage and will likely maintain or strengthen their positions. "Outlook For Global Not-For-Profit Higher Education: Credit Quality Divergence Continues," Dec. 7, 2023.

U.S. Not-For-Profit Health Care

We expect a constrained operating environment in 2024 largely due to persistently high labor and operating costs, which, for many organizations, have not been entirely offset by generally improving revenue trends.   Although acute contract labor expenses have dropped, many providers continue to contend with an imbalance between the rate of growth across expenses and revenue. As organizations ramp up longer-range capital plans and strategic investments, additional spending or debt issuances could also be a factor influencing credit quality, depending on balance-sheet strength and the level of cash flow improvement. The pace of margin recovery, supported by labor management, throughput and efficiency gains, and performance improvement plans, coupled with balance-sheet and enterprise strengths, will be key for providers to maintain credit quality in the coming year. "U.S. Not-For-Profit Acute Health Care Providers 2024 Outlook: Historical Peak Of Negative Outlooks Signals Ongoing Challenges," Dec. 6, 2023.

Transportation Infrastructure

Our view of business conditions and credit quality across the U.S. not-for-profit transportation infrastructure sector for 2024 is stable, as most asset class operators fully return to historical activity levels and planning for the future.   Our view applies to rated airports (and related special facilities), toll roads, maritime ports, parking operators, and all federal transportation grant-secured entities. Our negative sector view for mass transit is unchanged, reflecting financial pressures facing many transit providers with a historical reliance on fare revenues as they look to plug operating fund gaps as federal assistance runs out. "Outlook For U.S. Not-For-Profit Transportation Infrastructure: Back To The Future For Most Operators, While Mass Transit Minds The Gap," Jan. 10, 2024.

U.S. Public Power And Electric Cooperative Utilities

The financial performance of, and ratings on, U.S. public power and electric cooperative utilities could weaken in 2024, owing to a confluence of inflation, reduced consumer wherewithal to pay utility bills, the sensitivity of rate-setting bodies to economic conditions, and a developing trend of weakening financial margins.  Exacerbating inflation-related affordability pressures are legislative and regulatory mandates that S&P Global Ratings expects will trigger substantial utility spending on clean generation resources and generation additions needed to support load growth from electrification directives. However, utilities could maintain credit quality if they're able to recover costs in a timely manner and at levels sufficient to preserve sound financial margins--commensurate with our existing ratings. "U.S. Public Power And Electric Cooperative Utilities 2024 Outlook: Mandates, Rising Costs, And Diminishing Affordability," Jan. 23, 2024.

U.S. Charter Schools

U.S. charter schools' credit fundamentals are stable for now, supported by continued healthy demand, generally favorable per-pupil funding, and some cushion provided by still-available federal emergency relief funds.   During 2024, we expect schools will focus on managing increased expense pressures and teacher shortages amid dwindling federal emergency support and slower economic growth. "U.S. Charter Schools 2024 Outlook: Credit Stability, For Now," Jan. 17, 2024.

U.S. Public Finance Housing

Most affordable housing owners, operators, and lenders are well positioned to absorb emerging risks and slower economic growth.  The most vulnerable affordable housing transactions in our rated universe are those secured by properties with no enhancement or federal support that may not cover higher operating costs that we expect to persist in the near term. Beyond 2024, the results of the fall election could reduce federal funding and affordable housing legislation initiatives, though housing has generally received broad bipartisan support through various political cycles. "U.S. Public Finance Housing Outlook 2024: A Stable Foundation Despite Emerging Risks And Slower Economic Growth," Jan. 24, 2024.

U.S. Municipal Water And Sewer Utilities

The U.S. water utility sector remains stable, supported by proven cost recovery, substantial financial cushion, and prudent planning.   Nevertheless, rising costs likely will compound rate pressures, especially as American Rescue Plan Act funds are depleted and disposable personal income shrinks. "U.S. Water Utilities 2024 Outlook: Managers Navigate Rising Risks From A Position Of Strength," Jan. 18, 2024.