These Economists Say a Soft Landing is Wishful Thinking

Talk has been growing that the US economy is headed for a soft landing, especially in light of the recent inflation numbers that showed the pace of rising prices was continuing to slow. However, there are many economists that are not convinced of this rosy scenario.

The World Economic Forum, meeting this week in Davos, Switzerland, called the global economic outlook “gloomy,” according to the results of the latest survey of chief economists taken in late 2022.

“Global growth prospects remain anemic, and global recession risk high,” according to its report.

Nearly one in five respondents now consider a global recession to be “extremely likely” in 2023, more than twice as many as in the previous survey in September 2022.

Still, even this group appears to be softening their projections, with, about one-third saying a global recession is “extremely unlikely” or “somewhat unlikely,” more than twice as many as in September.

The situation in Europe and the US is now stark, with 100% of chief economists expecting weak or very weak growth this year in the former and 91% expecting weak or very weak growth in the latter.

At the time of the last survey, the corresponding figures were 86% for Europe and 64% for the US.

A Not-So-Soft Landing

Separately, Economic Cycle Research Institute economists Lakshman Achuthan and Anirvan Banerji have been predicting a recession since last Spring and that forecast remains for 2023, according to their recent opinion piece in CNN.

Among ECRI’s factors, the goods sector is especially vulnerable, they said, in part because it’s sensitive to higher interest rates.

“Symptoms of that vulnerability are already visible in falling factory orders. And, already under assault from rising mortgage rates, residential construction spending has been falling since last spring, and housing starts and new building permits have been tumbling.

“A true recession entails job losses — sooner or later. That is why — having predicted that the economy would enter a recession — last spring we urged job seekers “to update the resume and make any career moves while the job market is still hot.” Since then, we’ve already seen jobs losses in technology and finance, but more are coming even though the monthly job figures still look good.”

The Wall Street Journal’s latest quarterly survey revealed that three-quarters of respondents said the Fed wouldn’t achieve a soft landing in 2023; on average, 61% of academic and business and academic economists said there’s a probability of a recession in the next 12 months, little changed from 63% in October’s survey. “Both figures are historically high outside actual recessions,” according to its report.

The Case for a Mild Recession

Many in the banking sector are releasing their Q4 earnings reports and their commentary suggests they see a mild recession coming as they and consumers grapple with persistently high inflation and tighter monetary policy, according to a report in Marketwatch.

On Friday, JPMorgan Chase projected a “mild” recession in the U.S. this year. Days earlier, CEO Jamie Dimon had walked back his widely discussed prediction from last summer that an “economic hurricane” was coming.

Dimon said in the bank’s earnings release Friday, “The U.S. economy currently remains strong, with consumers still spending excess cash and businesses healthy.

“However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”

Bank of America during its conference call Friday after its Q4 report beat estimates also said a “mild recession” is possible.

“Our [reserve-setting] scenario, our baseline scenario, contemplates a mild recession,” BofA CEO Brian Moynihan said on Friday’s earnings call, according to a transcript. “That’s the base case of the economic assumptions in the blue-chip and other methods we use.

“But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted towards a recessionary environment in 2023.”