The Current Economic Situation: Is the US Next in Line for Recession?
As Japan and the United Kingdom slip into recession, economists are now debating whether the United States is next in line. Japan recently recorded back-to-back quarters of GDP contraction, with the economy falling 0.8 percent in the third quarter and sliding 0.1 percent in the fourth quarter. This development also knocked Japan off its pedestal as the world’s third-largest economy, with Germany now taking its spot. The UK is also entrenched in a technical recession, with a drop of 0.1 percent in GDP in the July-to-September period and a further decline of 0.3 percent in the final three months of 2023.
Other countries that are officially in a recession include Denmark, Estonia, Finland, Ireland, and Luxembourg. However, many economists and market observers do not believe that the headwinds in Asia or Europe will influence the United States. While US exports to both continents have risen in recent years, a drop in foreign demand might not be enough to weigh on the world’s largest economy. The United States exports between $70 billion and $80 billion in goods to Japan each year, and shipments of goods to the UK have also climbed above $70 billion for the first time.
Despite these concerns, the US economy has managed to avoid a downturn thus far. In the third and fourth quarters, the GDP growth rates were 4.9 percent and 3.3 percent, respectively. Looking ahead to the first quarter, estimates point to comparable expansion. The Federal Reserve and economists have trimmed their recession expectations and championed the soft-landing narrative. Fed Chair Jerome Powell stated that there is little basis for thinking that the economy is currently in a recession but acknowledged the probability of a recession within the next year.
Carsten Brezski, the global head of macro at ING, has called the US economy “a small economic miracle—or conundrum” that has surprised economists. He believes that the US consumer is more likely to tap into their savings than reduce spending, providing hope for the economy. While there is still a chance of a recession this year, many experts believe that the Fed’s soft landing appears to be the likely outcome.
However, a chorus of experts argues that the United States could face a slow-growth year. The Conference Board abandoned its long-held recession call and now anticipates GDP growth to slow to under 1 percent in the second and third quarters. Daniel Bachman, the senior manager at Deloitte Services, expects growth to ease to around 1.5 percent this year and inflation to moderate to below 3 percent by 2025. Despite this, the White House does not believe that the United States is the next domino to fall in the global economy. National Economic Council director Lael Brainard believes that the slowdown in inflation and resilient consumer spending could result in a benign climate.
Recent numbers show progress in the Federal Reserve’s inflation fight, with the annual inflation rate easing to 3.1 percent in January. However, economists warn of elevated price pressures and pockets of weakness forming. Retail sales tumbled 0.8 percent last month, the worst performance since March, driven by holiday hangover and frigid temperatures. Credit card debt also hit a record high in the fourth quarter of 2023, and delinquencies have increased. Industrial and manufacturing production have also seen declines.
Looking ahead, early forecasts point to another quarter of robust growth. However, experts caution that a slump in household spending could be a leading factor in slower growth in the year ahead. With consumption representing two-thirds of the national economy, it remains to be seen how these factors will impact the United States’ economic outlook.
