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Inflation is cooling off. Consumers are still spending. And the hiring rate is slowing — but not collapsing. That’s why Mark Zandi, chief economist at Moody’s Analytics, is increasingly confident that the US economy will — narrowly — avoid a recession.
“It’s going to be a fight. It will feel uncomfortable. But I think we’ll thread the needle,” Zandi said in a phone interview with CNN Business earlier this week.
Zandi, whose forecasts are often cited by the White House, pointed to recent economic and market indicators suggesting the economy is not falling off a cliff despite widespread recession fears.
“The data for the last few months has been better than I would have thought. None of the financial market indicators suggest that a recession is imminent,” Zandi said.
New figures released on Thursday show that inflation, as measured by the Federal Reserve’s favorite measure, eased in October. This raises hopes that the US Federal Reserve can slow the pace of its massive rate hikes later this month.
The US economy also grew faster than originally thought in the third quarter, recovering from two quarters of decline.
And what’s very positive for consumers weary of inflation are gas prices. The national average for regular gas is now below where it was when Russia invaded Ukraine, down sharply from June’s record high.
“My baseline is still not a recession. That hasn’t changed. But I feel more confident than I did a few months ago,” said Zandi. “Inflation is going down. Oil prices are stable to the downside. Employment growth is slowing. Layoffs are normalizing.”
Of course, there remains a great deal of uncertainty about what lies ahead, and there are plenty of reasons to worry about a possible downturn — including the Federal Reserve’s most aggressive rate hike in decades.
Zandi said he would not argue with those forecasting a recession, acknowledging it would be “close”.
A number of large companies have announced layoffs of more than 1,000 jobs each in recent days, including AMC Networks, DoorDash and crypto exchange Kraken. Add to that mass layoffs that have wiped out tens of thousands of tech jobs, including big cuts at Amazon, Twitter and Facebook owner Meta.
Factories are also coming under considerable pressure. A survey released Thursday by the Institute for Supply Management showed manufacturing activity fell in November for the first time since May 2020.
“Overall, things are getting worse,” said an executive at an electrical appliance, appliance and component manufacturer in the ISM survey. “Housing starts are declining. We’re doing well compared to our peers, but the industry as a whole is devastated. We’re sitting on cash (that is) tied up in inventory.”
Some business leaders warn that a downturn is likely still on the horizon.
Bank of America CEO Brian Moynihan told CNN’s Poppy Harlow on Tuesday that the economy is likely to slide into a recession next year — although he hopes it will be a “mild” one.
In a report Monday, S&P Global Ratings said only one of the nine leading economic indicators it tracks was in positive territory through October. S&P reiterated its expectation that the US economy will fall into recession next year, but expects a “mild” recession in line with the 1969-1970 downturn. S&P forecasts US GDP to fall just 0.8% peak-to-trough.
Zandi said he thinks all of these recession fears could work to the advantage of the economy by discouraging risky behavior, forcing companies to have cash on hand and convincing Washington officials to make prudent decisions.
For example, he pointed to President Joe Biden’s decision this week to ask Congress to take action to prevent a crippling railroad strike.
“I bet if we weren’t worried about a recession, the president wouldn’t have rushed to Congress,” Zandi said. “Everyone is on high alert and very cautious. The fact that we are so nervous about a recession makes it less likely that anything will go wrong.”
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