The U.S. economy is currently a topic of debate among top economists, who are divided in their outlook due to the persistence of high inflation data and strong job growth. According to the National Association for Business Economics (NABE), its economic outlook survey for February 2023 reveals a broad spectrum of opinions on the potential for U.S. growth, inflation, and the possibility of a recession this year.
NABE President Julia Coronado, who is also the president and founder of MacroPolicy Perspectives LLC, noted that the survey’s findings demonstrate “significant divergence” when it comes to the forecast for the U.S. economy.
According to Julia Coronado, the President of the National Association for Business Economics (NABE), estimates for inflation-adjusted gross domestic product, inflation, labor market indicators, and interest rates are widely dispersed, indicating a range of opinions on the future of the economy, from recession to soft landing to robust growth. This is reflected in the NABE survey, which shows that the median U.S. real GDP growth estimate for Q4 2022 to Q4 2023 is 0.3%, with estimates from the lowest and highest five ranging from -1.3% to 1.9%.
The majority of survey panelists believe the U.S. will experience a recession in 2023, with 58% of respondents predicting a greater than 50% likelihood of a recession within the next 12 months. However, the panelists’ opinions on when the recession will begin have shifted, with only 28% expecting it to start in Q1 2023, and 33% expecting it to begin in Q2, 21% in Q3, and 9% each in Q4 or after 2023.
Although economists surveyed by the NABE expect the unemployment rate to rise, they predict the uptick will be smaller than in previous surveys, with the consensus forecasting an increase from 3.5% in Q1 2023 to 4.4% in Q1 2024, then averaging 4.3% for all of next year. The majority of respondents believe that the unemployment rate will peak at 4.9% or lower in the next 12 months, while 23% believe it will peak at 5% or higher.
Inflation is predicted to remain above the Federal Reserve’s target rate of 2%, but economists foresee a slowdown in inflation over the course of 2023 and 2024, with the consumer price index (CPI) expected to rise by 3% year-over-year as of Q4 2023, and headline inflation predicted to decline further to 2.3% year-over-year as of Q4 2024 – slightly above the Fed’s goal.
The NABE survey also indicates that panelists’ views are divided regarding how high the Federal Reserve may raise interest rates, how long rates may stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts.
Economists surveyed by the NABE expect the federal funds rate to reach 4.875% at year-end 2023, with the Federal Reserve expected to begin cutting interest rates around the end of this year.
Finally, the NABE survey highlights the looming debate over raising the debt ceiling, with an overwhelming 71% of economists surveyed believing that the debt limit will be raised to resolve the situation, 26% believing it will be suspended, and only 2% expecting the U.S. to breach the debt limit. This is expected to occur this summer or early fall before the Treasury Department exhausts its extraordinary measures to avoid default.
