The U.S. economy has been a topic of much discussion and analysis in recent months. Many economists and forecasters have been speculating about the possibility of a recession in the near future. However, a new survey conducted by the National Association for Business Economics (NABE) suggests that the probability of a recession occurring within the next 12 months is 50% or less, according to nearly three-quarters of the forecasters surveyed.
This marks a significant change in sentiment compared to previous surveys. In a December poll by the NABE, 58% of economists believed there was a more than 50% chance of a recession in 2023. However, in the latest survey conducted in July, 71% of respondents said they now believe the probability of a recession in the next 12 months is just 50% or less. This shift in opinion reflects a growing sense of optimism about the resilience of the U.S. economy.
Despite this newfound optimism, some economists still believe that a recession may be on the horizon, although it may take longer than expected to materialize. Citigroup is among the forecasters who maintain that a recession is still possible, but it may be further in the future than initially anticipated.
The Federal Reserve has also been closely monitoring the state of the economy and recently raised its benchmark lending rate by a quarter point, bringing interest rates to their highest level in 22 years.[0] This move comes as inflation remains higher than desired, and policymakers aim to address inflationary concerns.[1] The Fed is also projecting one more rate hike this year, according to their latest set of projections.[0]
Despite these efforts to control inflation, the U.S. economy continues to show signs of strength.[2] Wages are strong, unemployment is low, and the economy is still growing.[3] The Federal Reserve no longer projects a recession in the near term.[4] This positive outlook is further supported by data indicating a decrease in inflation, a resilient labor market, and rebounding consumer confidence.[5]
Investors are also becoming more optimistic about the possibility of a “soft landing” for the economy, characterized by tamed inflation without a significant increase in unemployment.[0] Cyclical stocks, which tend to rise and fall with the economy, are rallying, indicating growing investor confidence in a soft landing scenario.[6]
While the economy appears to be resilient at present, there are still concerns about the potential long-term effects of the recent rate hikes. Historically, it has taken around four quarters for rate hikes to have their maximum impact on GDP and about six quarters to fully impact inflation.[2] This suggests that the full effects of recent rate hikes may not yet be felt and could potentially impact growth in the short term.
Overall, the U.S. economy is showing signs of strength and resilience, with the likelihood of a recession within the next 12 months decreasing, according to the latest NABE survey. However, economists and forecasters continue to monitor the situation closely, as the long-term impact of recent rate hikes and other factors remains uncertain.
0. “Wall Street suddenly appears confident America will avoid a recession” KTVZ, 27 Jul. 2023, https://ktvz.com/news/2023/07/27/wall-street-suddenly-appears-confident-america-will-avoid-a-recession
1. “Could the U.S. still see a recession? A handy primer about the confusing economy | NPR” KCRW, 24 Jul. 2023, https://www.kcrw.com/news/shows/npr/npr-story/1189268260
2. “Growth Outlook Improving, But Worst Is Yet To Come” Seeking Alpha, 25 Jul. 2023, https://seekingalpha.com/article/4619391-growth-outlook-improving-but-worst-is-yet-to-come
3. “Q2 GDP Up 2.4%” Floor Focus, 28 Jul. 2023, https://www.floordaily.net/flooring-news/new-indicators-increase-potential-for-soft-landing-without-a-recession
4. “3 reasons the US might actually fix inflation without a recession” Forex Factory, 29 Jul. 2023, https://www.forexfactory.com/news/1233308-3-reasons-the-us-might-actually-fix-inflation
5. “Investors shun US consumer stocks over recession fears” Financial Times, 26 Jul. 2023, https://www.ft.com/content/a2eeae68-66d5-4e47-8403-7bfa75b3d799
6. “US investors optimistic of a soft landing, Europe exits recession” Cityairnews, 30 Jul. 2023, https://www.cityairnews.com/content/us-investors-optimistic-of-a-soft-landing-europe-exits-recession
