ABA forecast: Recession chances dropping

The U.S. economy will avoid a recession despite an expected loss in economic growth over the next few quarters, according to the American Bankers Association's Economic Advisory Committee..Near-term recession odds have fallen but are still near 50 percent for next year, according to the committee of 14 leading economists from the largest U.S. banks. Risks are still evident in the delayed impact of the Federal Reserve's monetary tightening policy, worsening credit availability and high credit costs as well as any prolonged government shutdown or geopolitical tensions..Strong employment gains and an improvement in real disposable income has supported household spending, according to the EAC. The group expects spending will weaken amid the ongoing high cost of credit, continued shedding of excess savings, and weaker job growth. The committee expects monthly job growth to slow to slightly more than 70,000 in 2024 from more than 200,000 this year.. The EAC expects unemployment to rise to 4.4 percent by the end of next year as wage inflation eases and business investment slows. "The odds of the Fed achieving a soft landing look much better today than they did six months ago," added Committee Chair Simona Mocuta. "However, the battle against inflation is not yet won, so the Fed must remain vigilant. At the same time, there is a better balance between supply and demand across the board, in goods, services and labor markets. This helps the ongoing disinflation process.".Mocuta, chief economist at Boston-based State Street Global Advisors, said the economy has remained resilient as consumer spending has been strong and inflation has fallen to slightly more than 3 percent from 9 percent in July 2022. "We have already accomplished the atypical," Mocata said of the economy's resilience through monetary tightening. .Consumer inflation is projected to fall to just above 2 percent next year from its current mark of around 4 percent. The Federal Open Market Committee is expected to leave the target federal funds rate unchanged until May 2024, then reduce it by 100 basis points before the end of the year. Ten-year Treasury yields are expected to fall to 3.6 percent by the end of 2024 from more than 4 percent. Thirty-year mortgage rates are projected to fall to near 6 percent from near 8 percent.."Businesses have been preparing for a general economic slowdown by reducing inventory accumulation and hiring," the EAC stated. "Profit margins are expected to remain under pressure from rising labor costs, tightening credit availability and diminishing pricing power."