Economists believe that the U.S. may still be at risk of a recession, although the exact timing remains uncertain.
Gradual Slowdown Leading to Recession
Senior economist Ben Ayers of Nationwide expresses his belief that a recession will likely result from a gradual slowdown. Pinpointing the exact timing, however, proves to be highly challenging.
Growing Concerns Pointing to Recession
Wall Street economists share this sentiment, with many considering a recession to be more probable than not. They highlight several factors that contribute to this concern:
- Increasing interest rates by the Federal Reserve
- Slowing business investment
- Depressed housing market
- Slump in the manufacturing sector
- Ongoing strains in the banking system impacting lending
Chief economist Steve Blitz of TS Lombard also acknowledges the presence of a recessionary dynamic due to these factors.
Uncertain Timing
While there is consensus on the likelihood of a recession, economists remain uncertain about when it will occur. Recent surveys of economists suggest that a downturn could be at least a year away or even longer. This represents a departure from previous expectations of an imminent recession.
Economic Growth and Forecasts
The economy is projected to have grown between 1.5% to 2% in the recently concluded second quarter. Early forecasts for the third quarter, from July to September, indicate a similar pace of expansion in the gross domestic product.
Based on the most recent Wall Street forecasts, the earliest period for a downturn would be the final three months of 2023. The Conference Board’s economists predict this timeline, citing the index of leading economic indicators, which experienced a 15-month decline streak in June. Such a decline has previously preceded recessions, including the Great Recession of 2007-2009.
However, other economists have a different outlook, believing that a recession before the end of the year is less likely.
Overall, economists widely recognize the potential for a U.S. recession, but the precise timing remains uncertain. The economy continues to show moderate growth, and forecasts suggest that a downturn may still be some time away.
The Current Economic Situation
Unemployment remains at a remarkably low rate of 3.6%, highlighting the strong job market and numerous employment opportunities available. Alongside this, consumer spending continues to thrive, particularly in leisure, travel, and recreation sectors, providing a substantial boost to the service side of the economy.
While higher borrowing costs have impacted the economy, experts believe that households and businesses are still financially stable. This stability allows them to maintain their spending habits, thereby mitigating the potential decline in the economy.
Macroeconomic strategist Will Compernolle of FHN Financial emphasizes that when households and businesses possess strong balance sheets, tighter credit conditions do not immediately indicate an economic slowdown. Thus, the impact of these conditions on the economy is likely to be less severe.
Timing and Nature of an Impending Recession
Although speculation varies, most economists believe that a recession is most likely to occur sometime in the middle of next year.
According to Ayers, “The soonest we’d see a recession is in the first quarter of 2024. The slowdown has been more gradual than we thought.” This suggests that any imminent recession would be less severe compared to the deep recession experienced during 2007-2009. Instead, forecasters like Blitz and Ayers anticipate a brief and mild downturn or even just a period of sluggish growth.
Additionally, there is an increasing possibility of a soft landing, whereby inflation decreases while growth remains stable. However, this outcome heavily depends on the trajectory of inflation towards the Federal Reserve’s 2% target.