Business economists change their minds on recession predictions
The Economy is Poised to Avoid a Recession, Survey Shows
The latest survey conducted by the National Association for Business Economics (NABE) reveals that the economy is increasingly likely to steer clear of a recession. This survey, which involved over three dozen leading business economists, brings good news for the future.
In November, the NABE survey found that 75% of the panelists believe the odds of a recession in the next year are less than 50%. Only 24% of the participants think that a recession is more likely than not. This is a significant shift from the February survey, where 58% of respondents predicted an upcoming recession within the next 12 months.
Positive Economic Growth Projections and Inflation Cooling Down
The NABE report also highlights stronger economic growth projections, indicating a positive outlook for the economy. However, panelists expect growth to slow to 1% between the fourth quarter of this year and the end of 2024.
Since March of last year, interest rates have been rising as part of the Federal Reserve’s efforts to cool down the economy and control inflation. While higher rates may pose challenges for businesses, they have been effective in slowing down inflation. In October, inflation cooled to a 3% annual rate, and headline inflation stood at 3.2% in the consumer price index.
The central bank aims to bring inflation down to a healthy 2% annual rate and will maintain a restrictive monetary policy until that goal is achieved. Many economists consider “core inflation,” which excludes volatile food and energy prices, as a more accurate measure of inflationary trends. Currently, core inflation is running slightly higher at 4% according to the consumer price index.
Expectations for Unemployment and Job Growth
As economic growth slows due to higher interest rates, the NABE panelists anticipate a slight increase in unemployment next year. The projected unemployment rate for 2024 is an average of 4.2%, with a peak of 4.3% expected in the third quarter.
Despite the economic slowdown, the majority of panelists (nearly 80%) believe that the unemployment rate will peak at 4.9% or lower over the next 12 months. In October, the economy added 150,000 jobs, falling short of economists’ projections, but job growth has not yet turned negative. The current unemployment rate stands at 3.9% after reaching a record low of 3.4% earlier this year.
A Year of Economic Slowdown, But Not a Full-Blown Recession
Looking ahead, the economists predict that 2024 will be a year marked by an economic slowdown, potentially resulting in some job loss. However, it is unlikely to escalate into a full-blown recession. Despite the Federal Reserve’s interest rate hikes, which have reached their highest levels since the turn of the 21st century, the economy has remained surprisingly resilient this year.
In the third quarter of this year, the GDP projections showed a robust economic growth rate of 5.2%, the strongest since the pandemic rebound and 2014. The upcoming mid-December meeting of the Federal Reserve will be closely watched, with most experts expecting the central bank to maintain its target rate steady at 5.25% to 5.50%.
Investors currently have a 97% probability that the Fed will not raise rates at the upcoming meeting, according to the CME Group’s FedWatch tool. This tool calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
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Labor Market and Consumer Spending Remain Strong
An important factor in the economy’s ability to avoid a recession is the strength of the labor market. The NABE survey indicates that panelists expect the unemployment rate to remain low, with a median forecast of 3.6% in 2020. This suggests that job opportunities will continue to be available for workers and provide stability to the economy.
Consumer spending, which plays a vital role in economic growth, is also expected to remain strong. The survey shows that panelists forecast real personal consumption expenditures to grow at a rate of 2.6% in 2020. This positive outlook for consumer spending further supports the notion that the economy is poised to avoid a recession.
Trade Policies and Global Economic Conditions
The survey also addressed the impact of trade policies and global economic conditions on the US economy. The ongoing trade tensions between the US and China have had a noticeable impact on business investments and exports, but panelists expect a resolution to the trade dispute in the coming months. If an agreement is reached, it could provide a significant boost to both business confidence and economic growth.
Furthermore, the global economic conditions are seen as a potential risk to the US economy. Slower growth in major economies such as China and Europe could dampen demand for US exports and affect the overall economic performance. However, the majority of panelists believe that these risks can be mitigated and that the economy can navigate through these challenges successfully.
Conclusion
The NABE survey brings encouraging news for the US economy, suggesting that a recession is unlikely in the near future. The positive growth projections, low unemployment rate, strong consumer spending, and potential resolution of trade tensions provide a solid foundation for continued economic stability. However, it is important to remain vigilant and adaptable to any changes in global economic conditions and trade policies that may arise. By doing so, the US economy can continue to thrive and avoid a recession.
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