The economy is increasingly likely to avoid a recession, according to a new survey of more than three dozen leading business economists.
The monthly survey, which was conducted by the National Association for Business Economics in November and released on Monday, found that three-fourths of the panel pegged the odds of a recession in the next year at less than 50%, with just 24% saying that a recession is more likely than not.
That is a major departure from the February survey, in which 58% of participants predicted that a recession would hit in the next 12 months.
“Fewer respondents than in the October 2023 Outlook survey expect a recession within the next 12 months … while most respondents expect an uptick in the unemployment rate going forward, a majority anticipates that the rate will not exceed 5%,” said NABE President Ellen Zentner, chief U.S. economist at Morgan Stanley.
The report also found stronger economic growth projections, a good sign for the economy. Still, panelists expect growth to slow to 1% between the fourth quarter of this year and the end of 2024.
Interest rates have been rising since the Federal Reserve began tightening its monetary policy in March of last year. The higher rates are designed to cool the economy, and thus inflation, although they make life more difficult for businesses and could end up causing layoffs and cutbacks for companies.
Inflation has been meaningfully slowing. Inflation cooled to a 3% annual rate in October, as measured by the gauge favored by the Fed, declining 0.4 percentage points from the previous reading. Headline inflation clocked in at 3.2% in October in the consumer price index.
While price growth has slowed, the central bank wants to cool inflation down to the 2% annual rate that it considers healthy and intends to hold monetary policy in a sufficiently restrictive way until that happens.
“Core inflation,” which strips out volatile food and energy prices, is considered by many economists to be a more accurate measure of the true inflationary trends.
The NABE panelists expect that inflation will continue to decelerate, although not quite to the Fed’s preferred level. Core inflation is currently running a bit higher at 4%, according to the consumer price index.
Just 29% of respondents anticipate that core inflation will slow to 2% before the end of next year, down from 46% in the October survey. Forty-seven percent of those surveyed anticipate that core inflation will slow to 2% in 2025, and 21% expect that goal to be reached in 2026 or later.
As economic growth slows with the higher rates, the business economists expect unemployment to tick up next year. The unemployment rate is then projected to average 4.2% in 2024, with the peak of 4.3% expected to be reached in the third quarter.
The majority of the NABE panelists — nearly 80% — expect the unemployment rate will peak at 4.9% or lower over the next 12 months.
The economy added 150,000 jobs in October, fewer than most economists had projected, although job growth has not yet turned negative. The unemployment rate now sits at 3.9% after bottoming out at an ultra-low 3.4% earlier this year.
Taken together, the economists expect 2024 to be a year marking an economic slowdown for the country, one that will result in some job loss, though it will likely not rise to the level of a full-blown recession.
This year, the economy has remained surprisingly resilient despite the Fed hiking its interest rate target to a range of 5.25% to 5.50% — the highest they have been since the turn of the 21st century.
A new revision to the third-quarter GDP projections released last week showed that economic growth expanded at a 5.2% seasonally adjusted annual rate in the third quarter of this year, the strongest growth since the pandemic rebound and, before that, 2014.
