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���������ֳ�’s Sector Outlook: Neutral Economic growth will cool in 2024 but overall macro conditions will remain relatively neutral for U.S. states and local governments, and credit quality will remain stable and strong given governments' prudent efforts in recent years to bolster financial resilience. A combination of strong reserves, significant liability reductions and other prudent budget management measures leaves state and local governments well positioned. Employment, income, and GDP growth will all slow next year, but the U.S. should avoid an outright recession. Uncertainty about commercial office space demand given the seemingly permanent shift to some form of hybrid work, along with hawkish Federal Reserve policy will pressure values and suppress real estate market transactions. State and local governments built 2024 budgets on expectations of slower tax revenue growth, or even declines in some cases. Rating Outlook Distribution The vast majority of state and local government Rating Outlooks are Stable. This is consistent with 2022 and an improvement from the 2021 and especially 2020 distributions, which were heavily affected by pandemic-driven challenges. The stability in 2023 reflects the fundamental strengths of state and local governments, including broad and diverse revenue bases, control over revenues and spending, moderate long-term liabilities and sound financial cushions.