NABE says that the labor market may skirt the US recession

The latest survey from the National Association for Business Economics (NABE) on Monday displays the possibility of a recession in the coming year, but the labor market is expected to soldier on strong. According to a majority of US economists, we cannot evade a possible recession in the next year. However, recent events suggest that the potential recession will have a limited impact on the US labor market.

NABE published the results of their new survey this Monday, revealing that 57% of the participants strongly believe that there is a more than 50% chance of a recession in 2023. Among those who responded to the survey, a majority of economists, 52% to be exact, believe that a recession will start during the first quarter of the upcoming new year.

This survey was conducted November 7-18 and highlights the Federal Reserve’s tightening of the monetary policy to battle inflation as the biggest economical challenge for the US. 65% of the respondents stated too much monetary tightness is the greatest downside risk to the economy as they perceive it. When inquired about the greatest upside risk, exactly half of the participants cited the Fed’s achievements of a “soft landing” by tamping down inflation without a severe recession. However, the economists who responded to the survey were not so sure about the possibility of a soft landing. 77% of the economists put this possibility at 50% or lower.

The participants expect the monthly job growth to be slow in 2023, but don’t see a reason we should predict a contraction in payrolls. According to the beliefs of the panel, the monthly job gains will reduce from a 370,000 average in 2022 to a mere 76,000 in 2023. We will see the smallest gains in the first quarter of 2023, they believe. The November jobs report by the Labor Department on Friday revealed that 263,000 new jobs were added to the job market by employers last month. This was somewhat different from the stats of the October jobs report.

When the labor market enters a slow growth period, we will observe a corresponding rise in the unemployment rate. However, the NABE survey forecasts that this figure will remain at a lower level than what was seen during previous economic crises.

56% of the NABE survey participants believe that the unemployment rate will reach a height of 5% or lower. A minority of 17% of the respondents say that the unemployment rate will reach 5.5% or higher. The latter will be similar to what we have observed during past recessions in the US. The latest jobs report indicates that the unemployment rate remained stagnant MoM at 3.7%.

The results of the NABE report suggest that we will not see an end to the Fed’s struggle to tamp inflation anytime soon. According to 44% of the survey participants, inflation will not decline to 2% year-over-year as desired by the Fed at least until 2024. A 42% chunk of the participant pool believes that the Fed won’t achieve its target until 2025 or later.

According to the surveyed economists, the Fed will announce even more aggressive interest rate hikes next year. During the NABE’s October survey, the panelists predicted the federal funds rate target will top out at 4.25% during the first quarter of 2023. They believed the figure will decline to 3.875% in the final two quarters of the new year. The respondents of the latest NABE survey forecast the federal funds rate target to top out at a median of 4.875% in the first half of the new year. By the fourth quarter of 2023, this value will reduce to 4.625%.