- The odds of a U.S. recession in 2023 exceed 50%, with the downturn most likely to begin during the first quarter of the year amid a cooling in the labor market, the National Association for Business Economics (NABE) said Monday, citing a survey of 51 professional forecasters.
- After a mild recession, gross domestic product growth will recover and for the full year expand 0.3%, the forecasters predicted, marking down their 1.1% estimate in October for economic growth next year.
- “The more subdued outlook coincides with materially higher expectations for interest rates at the end of this year and next,” according to Dana Peterson, chair of the NABE survey and Conference Board chief economist. “Panelists expect job growth will slow over the first three quarters of 2023 but remain positive.”
By far the greatest downside risk for the economy through 2023 is “too much monetary tightness,” NABE said, citing responses from 67% of economic forecasters. The second biggest risk — financial crisis — was flagged by just 13% of respondents.
Federal Reserve policymakers have repeatedly said that their effort to reduce the highest inflation in nearly four decades may set back businesses and the job market. The central bank has increased the federal funds rate by 3.75 percentage points this year in its most aggressive withdrawal of stimulus since the 1980s.
“By any standard, inflation remains much too high,” Jerome Powell said in a Nov. 30 speech at the Brookings Institution. “It is likely that restoring price stability will require holding policy at a restrictive level for some time.
“History cautions strongly against prematurely loosening policy,” he said. “We will stay the course until the job is done.”
As policymakers reduce accommodation, unemployment will likely increase to 4.5% by the fourth quarter of 2023 from 3.7% in November, NABE said, citing responses from the forecasters. NABE conducted the survey from Nov. 7 until Nov. 18.
“Participants [in the survey] anticipate fewer job additions, but no contraction in payrolls,” NABE said. Nonfarm payroll growth will probably shrink from a 370,000 average monthly gain in 2022 to just 76,000 in 2023. Monthly job growth during the fourth quarter of 2023 will probably average 75,000, according to the forecasters.
Although gloomier than in October, the forecasts for a weaker labor market and slower economic growth “are not really consistent with a recessionary environment,” Peterson said during a NABE webinar.
Wage growth in 2023 will likely persist above the pre-pandemic trend, the forecasters said. Nonfarm business compensation per hour will probably increased 4.9% this year, matching the pace of 2021, before slowing to 4.3% next year.
Average hourly earnings rose 5.1% last month compared with a year earlier as labor force participation fell, remaining below the pre-pandemic level, the Labor Department said. Employers added 263,000 jobs during the month, indicating just a slight cooling in the labor market from the first half of 2022.
“Respondents continue to raise their inflation expectations for both 2022 and 2023,” NABE said.
Despite Fed efforts against inflation, the consumer price index (CPI) will probably increase 8.1% in 2022, or 0.1 percentage point more than forecasters predicted in October. CPI next year will probably slow to 4.2%, an estimate 0.4 percentage higher than projected in October, NABE said, citing its survey.