Economists lower recession forecasts to 40% on U.S. job growth expectations

Economists again marked down their U.S. recession forecasts on expectations that a firm job market and sturdy consumer spending will support stronger economic growth in the near term.

The economy is seen expanding at a 2.1% annualized rate this year, up from the 1.5% expected last month, amid stronger household demand and government spending, according to the latest Bloomberg monthly survey of economists.

Respondents now see consumer spending, which accounts for two-thirds of gross domestic product, rising by nearly half a percentage point more in each of the next two years compared to last month’s projections.

While forecasters largely expect the U.S. economy to lose some steam after a blockbuster 2023, a still-robust labor market and receding inflation continue to support mostly solid household demand.

In light of that ongoing resilience, respondents now see the unemployment rate peaking at 4.1% later this year, down from the 4.2% anticipated last month. They also expect U.S. employers to add more jobs through 2026.

The continuous momentum in the economy helps explain why economists now see a 40% chance of recession in the next year, the lowest reading since mid-2022. Those projections peaked at 65% in the first half of 2023 as the Federal Reserve neared the end of its most aggressive hiking cycle in 40 years.

“The U.S. economy remains the envy of the world,” said James Smith of EconForecaster LLC. “Both real economic growth and employment growth remain strong while inflation rates and interest rates are falling.”

Respondents see the personal consumption expenditures price index, the Fed’s preferred inflation metric, rising by an average 2.2% in 2024, slightly above last month’s projection. They expect the so-called core measure, which excludes food and energy, to increase 2.4% on average this year.

While inflation is seen slowing further, economists now expect the Fed to keep interest rates elevated for longer. They now see only one quarter-point reduction in the third quarter of this year, compared to two in the last poll.

The Bloomberg survey was conducted Feb. 16-21 and included responses from 72 economists.