The much-discussed 2023 recession is still not here, and economists are growing less confident that it will even happen.
This week, the Wells Fargo team of economists became the latest group to downgrade their recession outlook. The company now expects a recession to hit in early 2024, as recent economic data shows the economy is “not yet on the brink of recession.”
“Although we still expect the lagged impact of monetary tightening and reduced credit availability to dampen economic growth, the economy has shown more resilience than we anticipated,” the Wells Fargo economist team wrote in a note to clients on Wednesday . “As a result, we have pushed back our expectations for the start of the economic downturn to the first quarter of 2024.”
Wells Fargo isn’t the only one turning more optimistic about the outlook for economic growth in 2023. Goldman Sachs earlier this week cut its odds of a recession this year from 35% to 25%. Capital Economics announced in a Wednesday statement that the company plans to lower its third-quarter recession forecast. Bank of America chief economist Michael Gapen told Yahoo Finance Live that the path to a “soft landing,” or mild recession, is widening. It even suggests there is no recession, Goldman Sachs COO John Waldron told Bloomberg earlier this week.
The upbeat outlook follows economic data that economists often describe as “resilient.” The US job market added 339,000 jobs in May, the strongest monthly increase since January. The job offers in April also surprised positively. And that’s while consumers continue to spend despite persistent inflation.
On Thursday, the Atlanta Fed forecast the US economy to grow 2.2% in the second quarter, marking the fourth straight increase in gross domestic product. Typically, two consecutive quarters of GDP declines would be taken as the official sign of a recession.
“We now suspect that the economy will not slip into recession as early as the third quarter, as we had previously anticipated, and that it will take longer for a meaningful downturn in the labor market to materialise,” Capital Economics wrote on Wednesday.
The story goes on
The recession debate comes as Wall Street is wondering how the economy will respond to the Federal Reserve’s most aggressive rate-hiking campaign in 40 years. The economy could recover from rate hikes through a “hard landing,” where the Fed triggers a deep recession and unemployment spikes, or through a soft landing, where the US economy slows only slightly.
Gapen notes that the “mild recession” he and the BofA forecast fits the description of a soft landing. The overall likelihood of that happening has increased in recent weeks as the credit impact of the Silicon Valley bank collapse appears to have eased and the debt ceiling debate in Washington has settled.
“Right now, unless bank stress worsens and a credit crunch is exposed, it’s harder to see where the risk of a hard landing is coming from,” Gapen told Yahoo Finance Live.
A general view of Pacific Western Bank in Huntington Beach, California, U.S. March 22, 2023. Pacwest is one of several regional banks under stress since the collapse of Silicon Valley Bank. Portal/Mike Blake
There are still pessimistic assessments of the economy. Morgan Stanley expects corporate earnings to fall 16% by the end of the year, while analysis by Bespoke Investment Group found investors have not bet this much on a S&P 500 decline since 2007.
But the stock market is considered a forward-looking indicator, and the Nasdaq is up over 26% this year while the S&P 500 is nearing a bull market. So if a severe recession is still looming in 2023, markets have not priced that in.
Josh is a reporter for Yahoo Finance.
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