Bloomberg reported on Tuesday (20th) that the possibility of the U.S. economy falling into recession next year is 70%, following the Federal Reserve (Fed) aggressively raised interest rates, both demand and inflation forecasts were lowered.
Bloomberg’s latest monthly survey of economists shows that the probability of a US economic downturn next year has more than doubled from 65% in November to half a year ago. The survey period was from December 12 to 16, and 38 economists were interviewed.
According to the results of the survey, the median forecast of economists shows that the average growth rate of US gross domestic product (GDP) will be only 0.3% next year, of which GDP will decline at an annual rate of 0.7% in the second quarter, and will be flat in the first and third quarters. Consumer spending accounts for regarding two-thirds of GDP, and economists expect little growth in the middle of next year.
Bill Adams, chief economist at Comerica Bank, said the U.S. economy is facing significant headwinds from soaring interest rates, high inflation, the end of fiscal stimulus and weakness in overseas export markets. Businesses have become more cautious regarding building inventories and hiring, potentially delaying construction and other capital spending plans as credit costs rise and orders dwindle.
Growth in the Fed’s favored inflation gauge, the personal consumption expenditures price index (PCE) and the core PCE index excluding sources and food, slowed in what was seen as a sign of cooling inflation, but was well above the Fed’s 2% target .
And this explains why Fed Chairman Powell hinted last week that monetary policy will be further tightened early next year following the Fed raised interest rates to a new high since 2007. In addition, Powell also made it clear that he would not consider cutting interest rates next year.
The Bloomberg report pointed out that the key reason why the Fed may maintain high interest rates for a longer period of time is the flexibility of the labor market. But as the economy weakens, so does the job market. Economists predict that employment will decline in the second and third quarters of next year, the unemployment rate may rise to a peak of 4.9% in the first quarter of 2024, and average hourly earnings will also decline following strong growth this year. Cool down.
Businesses are shrinking as high inflation and borrowing costs take a toll on U.S. household finances. Economists expect private investment, which includes spending on equipment and construction, to fall more than a month ago in the first three quarters of next year, forecasting an average decline of 3%.
U.S. manufacturing has been hit particularly hard by falling investment, weak household spending and a global economy on the brink of recession. According to a Bloomberg survey, economists lowered their industrial production expectations each time next year, and now expect industrial production to fall by an average of 0.7% next year, far below the 0.2% growth estimated in November.
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