More than half of the nation’s business economists think the US will sink into recession in the next year, with manufacturers fearing the worst.
Some 52% of economists polled by the National Association for Business Economics forecast a recession before the end of 2023. And 3% already think a downturn has begun.
The economy has already begun to slow in response to high inflation and rising interest rates. Households have cut back on spending and businesses are hiring fewer workers.
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What’s more, the Federal Reserve plans to raise interest several more times in 2023 to ensure the worst outbreak of inflation in 40 years continues to recede.
The central bank has already jacked up a key short-term interest rate from near zero last year, and the Fed is likely to keep going until the rate tops 5%.
Higher borrowing costs temper inflation by slowing the economy and reducing demand for labor, goods and services. The PCE price index, which is officially used by the Fed in setting its 2% price target, rose 5.5% in the 12 months ending November.
In any case, businesses say a slowdown in demand is already taking place, easing supply bottlenecks that help spawn high inflation in 2021 and 2022.
The cost of materials have “drifted down,” the NABE said, and there’s less need to hire more workers. For the first time since 2020, more economists expect employment to shrink in the next three months instead of increasing.
Slower sales, meanwhile, are expected to dent profit margins and discourage companies from investing as much, adding to economic weakness.