US could fall into recession by early 2023: Conference Board

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Diving Brief:

  • JThe US economy is unlikely to grow this quarter and, after further weakness, could slip into a brief recession by early next year. The Conference Board said Thursdayciting its Leading Economic Index (LEI).
  • “Consumer pessimism and equity market volatility – along with slowing labor markets, housing construction and new manufacturing orders – suggest economic weakness will intensify and spread more broadly across the board. of the U.S. economy,” said Ataman Ozyildirim, senior director of economics at the conference. Plank. “The economy could tip into a short but mild recession by year-end or early 2023.”
  • The LEI, which forecasts the economic outlook seven months ahead, fell 1.6% from January to July after rising by the same amount in the previous six months, the Conference Board said.

Overview of the dive:

Jhe gloomy forecasts of the Conference Board come on top of several recent warnings from economists that the United States is heading for at least a slight slowdown over the next two quarters.

Factors such as a weak housing market, the highest inflation in four decades, geopolitical unrest, sluggish manufacturing and crimped supply chains will likely lead to an economic downturn, they say. Additionally, the Federal Reserve risks triggering a recession as it attempts to rein in price pressures by raising the federal funds rate at the fastest rate since the 1980s.

CEOs share the pessimism, according to the results of a survey by the Conference Board and the Business Council published on Wednesday. Four in five CEOs (81%) are bracing for a brief, shallow recession over the next 12 to 18 months, with 12% predicting a deep downturn that will hurt global growth.

“CEOs are now bracing for the near inevitability of a U.S. recession by year-end or 2023,” Business Council Vice Chairman Roger Ferguson said in a statement. Only 7% of senior executives expect sustained growth.

The United States may already be in a recession. The economy shrank 0.9% in the second quarter after falling 1.9% in the first three months of 2022, meeting the common definition of a recession as at least two consecutive quarters of negative growth.

Three in four CEOs (77%) said general economic conditions had deteriorated since the second quarter, the survey found. In the previous survey, 61% of CEOs said the economy deteriorated from the first to the second quarter.

CEOs identify inflation as their biggest challenge, with three in five saying input costs over the past three months have either remained stable or increased, according to the survey.

Over the next 12 months, half of CEOs plan to increase payroll, up from 63% in the second quarter, according to the survey. Similarly, 82% of CEOs plan to increase capital spending, up from 93% in the April-June period.

Although less optimistic about the economy, CEOs “report conditions and intentions from their own companies that paint a more nuanced picture,” Conference Board Chief Economist Dana Peterson said in a statement. For example, three out of four CEOs “say demand has increased or remained stable over the past three months.”

Indeed, the economy is showing some glimmers of vitality. Consumer spending remained strong last month, the Commerce Department said Wednesday. Additionally, the unemployment rate in July fell to 3.5% – the lowest since the pandemic began in early 2020 – as US employers significantly beat forecasts and increased payrolls by 528,000.

The Conference Board’s LEI tracks 10 sets of data, including average weekly hours in manufacturing, average weekly unemployment insurance claims, building permits, the Standard & Poor’s 500 index and the gap between the federal funds rate and 10-year treasury bonds.

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