Economists Confident U.S. Economy Can Steer Toward a Soft Landing, Avoiding a Recession

 

Economists Confident U.S. Economy Can Steer Toward a Soft Landing, Avoiding a Recession

But higher growth will come with higher inflation.

Photo: Getty Images

Economists are increasingly confident the U.S. economy will avoid a recession this year.

Nine out of 10 business economists predict the economy is heading for a soft landing in 2024, according to the May outlook from the National Association for Business Economics released on Monday. The professional organization polled 43 of its members between April 23 and May 6.

Instead of a downturn, the economists surveyed expect stronger growth over the rest of this year and into 2025. The median forecast for real gross domestic product increased to 2 percent for the second quarter and 1.5 percent for the third quarter, up from 1.4 percent and 1.3 percent predicted back in February. For all of 2024, economists see the economy growing by an annual average of 2.4 percent, up from the median forecast of 2.2 percent calculated in the previous survey.

Even though a recession is not likely to materialize this year, that does not mean economic conditions will be entirely rosy for entrepreneurs. While businesses are more likely to enjoy higher growth, including higher customer spending, they will likely be stuck contending with higher prices, too. That’s because economists do not expect inflation to dissipate anytime this year, hiking their inflation forecasts for 2024. The median prediction for the personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, rose to 2.6 percent, up from 2.1 percent in the previous outlook. The core PCE index, which strips out the more volatile food and energy costs, is expected to climb 2.7 percent, up from the previous forecast of 2.2 percent.

“The NABE Outlook Survey panel expects inflation to remain a concern,” said NABE President Ellen Zentner, who also serves as the chief U.S. economist at Morgan Stanley. “With the higher inflation expectations, panelists now anticipate the Federal Reserve’s Open Market Committee will cut rates by half a percentage point–down from three-quarters of a point and to occur later in the year than previously expected.”

In sum: Economists expect policymakers to keep interest rates elevated for longer, with more than two-thirds of survey respondents saying the Federal Reserve will wait until at least the July meeting to lower the federal funds rate.

That could extend the impact of a higher cost of capital and the tighten credit availability. Indeed, economists cited “too much monetary policy tightness” as the greatest downside risk to the U.S. economy. The most frequently cited potential upsides to the economy were productivity and lower inflation.

Productivity check

So if productivity is an important potential in growing the economy, how are you measuring it. The devil is in the details. You need to keep tabs on your bottom line but don’t overlook regular evaluation of your sales team. Is everyone operating at top productivity? Need help on how to make that happen? Reach out, we’re here to help.

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ALI DONALDSON AND CARL PHILLIPS

 
 

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