Economists revise downward recession projections to 40% amid optimistic outlook for US employment expansion

Economists cut recession forecast to 40%, citing job optimism

In a noteworthy turn of events, economists have once again fine-tuned their predictions for a potential US recession, marking down the likelihood to 40%. The key drivers behind this shift are expectations of a robust job market and sturdy consumer spending, fueling optimism for stronger economic growth in the near term.

Upward Revision in Economic Expansion

The latest Bloomberg monthly survey of economists reveals a more positive outlook for the US economy. Projections now indicate a 2.1% annualized expansion this year, a substantial increase from the 1.5% forecasted just last month. This upward revision is attributed to increased household demand and a surge in government spending.

“Economic optimism grows as Bloomberg’s survey points to a 2.1% US expansion, driven by robust demand and government spending,” according to Bloomberg.

Consumer Spending: A Driving Force

Anticipating a pivotal role for consumer spending, respondents foresee nearly half a percentage point more growth in this sector for each of the next two years, compared to previous month projections. Consumer spending, constituting two-thirds of the gross domestic product (GDP), is poised to significantly impact overall economic growth.

Solid Labor Market and Diminishing Inflation

While recognizing the potential for a slight economic deceleration after 2023, economists emphasize the resilience of the labor market. Diminishing inflation is also identified as a critical factor supporting strong household demand. Forecasts now predict the unemployment rate peaking at 4.1% later this year, down from the 4.2% anticipated in the previous month. Moreover, expectations point to continuous job growth by US employers through 2026.

Recession Probability Hits a Low

The ongoing momentum in the economy has led economists to revise recession probabilities down to 40%, the lowest reading since mid-2022. This stands in stark contrast to the first half of 2023. During that period, recession projections reached their peak at 65%. This coincided with the Federal Reserve concluding its most aggressive interest rate hiking cycle in four decades.

Inflation Dynamics and Interest Rates

In the realm of inflation, respondents project the personal consumption expenditures price index to rise by an average of 2.2% in 2024. The Federal Reserve prefers this index, and the projected increase is slightly higher than last month’s projection. Remove the passive voice: We expect the core measure, excluding food and energy, to increase by an average of 2.4% this year. Despite anticipated inflation slowdown, economists predict the Federal Reserve will prolong elevated interest rates, defying expectations of a decrease.

Confidence in Stability

James Smith of EconForecaster LLC expressed confidence, stating, “The US economy remains the envy of the world. Both real economic growth and employment growth remain strong while inflation rates and interest rates are falling.”

Comprehensive Survey Insights

The Bloomberg survey, conducted from Feb. 16-21: Gathered responses from 72 economists provide a comprehensive overview of the current economic landscape. The findings indicate a positive trajectory foreseen in the coming months.

“The recent Bloomberg survey of 72 economists from Feb. 16-21 paints an optimistic economic outlook ahead,” according to Barron’s.

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