Economists Say Chance of a Recession Has Dropped Significantly

A survey of members by the National Association of Business Economics suggests that the chance of a recession in the next 12 months has dropped significantly. Of the respondents, 7% said 0% to 10%; 40% put the odds at 11% to 25%; and 50% said between 26% and 50%.

However, there were concerns about economic conditions. About 31% of respondents said that concern over inflation is the factor having the greatest effect on staffing or investment decisions. At 19%, uncertainty over the presidential election is the second biggest effect.

A record percentage of members’ firms raised prices in the second quarter of 2024 — 57% — than the previous survey in April. Given the downward trajectory of inflation, it may be a result of increasing cost pressure. The Producer Price Index increased by 2.6 percent in June, above the 2.3% expectation.  However, materials costs were unchanged by 57% or falling by 3%, compared to a 40% rise. And for the next three months, only 22% expected costs to increase. About 69% thought they would be unchanged and 8% said they expected them to fall.

But higher prices don’t necessarily mean more profits. Only 47% reported higher sales over the past three months than in the previous report when 57% saw higher prices. The organization’s net rising index, the percentage of firms that reported rising margins versus the percentage that reported falling margins, fell from 24 in April to 7. That is the lowest reading since the -20 of October 2023.

Also, as the Fed has reiterated, the economy’s future is about more than inflation. The strength of employment is critical given that 69% of GDP is consumer spending. “While many of the results in this quarter’s survey suggest improvement, the labor market appears uncertain,” said NABE Business Conditions Survey Analyst Michael Uhrich, founder and chief economist of Seventh Point Analytic Consulting, in prepared remarks.

Uncertain in more ways than one. A third of respondents reported skilled labor shortages. That’s been the average for the last four quarters. Shortages of unskilled labor were reported by 9%. In April that was 12% and 21% in July 2023.

The survey isn’t statistically representative of the country as a whole, as it was of 45 NABE members, so the group is self-selected and too small. But there are some significant firms in the mix and, unfortunately, often business data, by its nature, is imperfect.