A much-predicted U.S. recession still hasn’t happened — and some economists are questioning whether it will happen at all.
Wall Street firm Goldman Sachs on Tuesday reduced the odds of recession in the next 12 months to 25% from 35%. Other forecasters have pushed the possible starting date for a downturn further out, toward the end of the year. And some even think the U.S. is likely to avoid a recession altogether.
“We continue to look for a soft landing this year,” said chief economist Jack Kleinhenz of the National Retail Federation.
He was referring to the difficult-to-achieve scenario in which the Federal Reserve raises interest rates enough to slow the economy and bring down high inflation without triggering a recession.
Just a few months ago, such a view might have seemed farfetched.
The Fed was rapidly raising a key short-term U.S. interest rate to the highest level in 16 years. Manufacturing fell into a slump. The housing market crashed. Consumer spending and consumer confidence sagged. A spate of bank failures raised the specter of a major financial crisis. And Washington was deadlocked in a dispute that threatened U.S. default.
And now?
The Fed may pause rate hikes for now. The housing market has bottomed out. Consumer spending has picked up. The banking system has stabilized. Washington has resolved the debt-ceiling dispute. And the U.S. labor market is still on fire.
Inflation is still very much a problem, of course, but the rate of price increases has slowed. And now inflation-adjusted incomes are rising, giving Americans a bit more money to spend.
The U.S. economy is not completely in the clear, said Goldman chief economist Jan Hatzius. But the outlook is not as cloudy as it was.
“We are in a below-trend growth environment … but positive growth still seems more likely,” Hatzius said in an interview on CNBC.
Kleinhenz was more optimistic.
“Consumer spending has been bolstered by a strong job market and rising wages, which have helped counter rising prices and higher borrowing costs,” he said.
“While it’s difficult to reconcile these views, what we’ve learned over the last several years is don’t count the American consumer out, at least not yet.”
Americans themselves don’t seem quite as worried, either. The number of searches for the word “recession” on Google has fallen close to a one-year low after spiking last summer.
