When I was a kid I saw a sign in a restaurant reading “free beer tomorrow.” I anxiously told my parents they could get free beer tomorrow but they rolled their eyes. Then they broke the news to me that tomorrow it’ll be free beer tomorrow.
The same thing is going on with the economy right now. Only instead of free beer tomorrow, it’s “there’s a recession coming in six months.” Once six months go by, economists again forecast a recession in the next six months.
And yet it still hasn’t panned out, that was the basis of Nick Timiraos’ story for The Wall Street Journal earlier this week.
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Will there be a recession in 2023?
Not even the best economists can predict with absolute certainty when the next recession will begin. But for the time being, it’s safe to say we likely aren’t in a recession.
The unemployment rate is extremely low at 3.4% and job openings are still plentiful even though there was a relatively small decline in January, according to the latest Job Openings and Labor Turnover Survey. And despite stubbornly high prices, Americans by and large aren’t cutting back on spending for essential and nonessential goods and services.
But if you asked economists six months ago if they thought we’d be in a recession right now, many would’ve said yes.
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Their logic was as follows: If the Fed has to continue hiking interest rates to lower inflation it’s going to cause consumers to cut back on spending and the drop in sales will lead employers to lay off employees.
That’s certainly happened in some sectors of the economy like tech, media, banking and housing. But for now, these layoffs appear to be the exception, not the norm.
And consumer spending, which accounts for a whopping 70% of the economy, grew by nearly 2% in January, the largest gain in nearly two years.
Recession odds
Forecasters have modestly upgraded their outlook for the economy and job market, and they now expect a recession to begin later in 2023 than they had thought.
Fifty-eight percent of the economists still say there’s more than a 50% chance of a downturn in the next 12 months, according to a panel of 48 forecasters surveyed Feb. 3-10 by the National Association of Business Economics (NABE). That’s about the same share as in a December survey.
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But just 28% expect the slump to begin in this quarter, compared with 52% who held that view in December. Instead, 33% predict a recession will start in the second quarter and another 21% say it will begin in the third quarter.
A big reason for the improved forecast was January’s stunning 517,000 job gains.
Jobs report and CPI data
Economists will be keeping a close eye on key data coming out in the next couple of days.
On Friday we will get a fresh view into the health of the labor market. Economists surveyed by The Wall Street Journal the Labor Department’s report will show that employers hired 225,000 new workers.
And on Tuesday, new consumer price index data will be released. Last month’s inflation data came in hotter than economists expected after December’s CPI report showed major signs of improvement.
Both pieces of data will carry a lot of weight for the Fed, which will meet later this month to decide how much to raise rates.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
Paul Davidson contributed to this report
