Economists Warn U.S. Already In Recession Or Could Be Soon—The Latest In A Series Of Dismal Forecasts

Economists Warn U.S. Already In Recession Or Could Be Soon—The Latest In A Series Of Dismal Forecasts

Topline

The United States is already in a recession or could tip into one soon, economists surveyed by the National Association for Business Economics (NABE) warned on Monday, the latest in a series of gloomy predictions as the Fed battles to counter soaring inflation and fears of impending job losses grow.

Key Facts

Nearly two-thirds of business economists polled in the NABE’s October business conditions survey believe the U.S. is either already in a recession or is more likely to be than not within a year.

Over half of respondents said there was a more-than-even chance the U.S. would tip into recession in the next 12 months, according to the survey of 55 NABE members conducted October 3 through October 10.

Respondents highlighted slowing sales, shrinking profit margins and costs, notably wages, as particular causes for concern.

More respondents than not reported shrinking profit margins over the last quarter, NABE said, the first time since mid-2020.

The gap between the number of respondents reporting rising sales in the last three months and those reporting falling sales also dropped, NABE said, falling to 8 percentage points, the lowest level since mid-2020.

Respondents expect profit margins will continue to contract over the next quarter, though more expect sales to increase than decrease.

Tangent

Fears of layoffs and high levels of unemployment go hand-in-hand with talk of economic recession. Many companies have already started streamlining the workforce through layoffs or hiring freezes and the Federal Reserve believes a weaker labor market is needed to control inflation. A third of respondents to the NABE survey reported higher employment at their firms over the past three months, down from 38% in the last survey in July. Just 22% expect their firms to increase headcount over the next quarter, down slightly from the last survey (24%) and less than half of the survey in January (50%). Though two-thirds of respondents said wages rose at their firms last quarter, respondents expect wage costs to plummet over the next three months and reach the lowest level since April 2021.

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Key Background

The survey is the latest in a long line of gloomy predictions for the U.S. economy. Inflation is sitting around 8%, the highest level in four decades, and the Fed has pursued a policy of aggressive rate hikes to regain control. The U.S. is not alone and many other nations are facing their own economic woes, record levels of inflation and cost-of-living crises. The International Monetary Fund downgraded its outlook for the global economy next year and the World Bank warned there is a “real danger” of a global recession as central banks move to combat high inflation. Though there are many factors influencing the economy, the double-punch of Russia’s invasion of Ukraine and the impact of the Covid-19 pandemic in close proximity are key driving forces.

Further Reading

Does The Fed Want You To Lose Your Job? It’s Complicated. (Forbes)

US strong enough to avoid recession, says Biden economic adviser (FT)

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