Despite earlier predictions of a recession, a majority of economists are now optimistic about the U.S. economy's ability to avoid such a downturn. According to a recent survey conducted by the National Association of Business Economists (NABE), nearly four-fifths of economists believe that there is a 50% chance or less of a recession occurring within the next year, with only 18% expressing concerns about a downturn.
One of the key factors contributing to this optimism is the remarkable resilience displayed by the U.S. economy over the past year, even in the face of rising interest rates. Typically, higher borrowing costs tend to hinder economic growth; however, the country's gross domestic product (GDP) witnessed a significant surge of 4.9% in the third quarter.
A welcome development that has aided the economy recently is the slowdown in inflation, accompanied by the resolution of supply shortages that plagued both the U.S. and global economies in 2021 and 2022. Fewer firms are passing on their own price increases to customers in an effort to stimulate sales, resulting in improved consumer conditions.
Carlos Herrara, chief economist at Coca-Cola North America and chairman of the NABE survey, stated, "The panel suggests that inflation is continuing to ease, which is good news for consumers."
However, not all aspects of the survey revealed positive outcomes. Businesses reported a recent slowdown in sales and a decrease in profit margins. Alarmingly, for the first time in three years, more economists acknowledged that employment was declining rather than growing.
NABE President Ellen Zentner, who is also the chief U.S. economist at Morgan Stanley, shed light on these findings, stating, "The survey results suggest a more challenging business environment as the economy slows."
According to the survey, high interest rates remain a significant challenge for companies. The Federal Reserve has progressively raised a key short-term U.S. interest rate to 5.5% from near zero since spring 2022 in an attempt to curb inflation. With the aim of bringing inflation back to pre-pandemic levels of 2% or below, the Fed plans to maintain high interest rates for an extended period. While senior central bank officials are scheduled to meet this week, it is widely anticipated that rates will remain unchanged.
