Survey Reveals Low US Recession Risk, Optimistic Business Outlook for 2022

Summary

  • In the recent NABE survey, nearly 91% of the participants assigned a less than 50% possibility of the U.S. plunging into a recession in the following twelve months.
  • This optimism surge stands in contrast with the scenario a year ago, where the Federal Reserve’s interest-rate hikes to curb high inflation led many economists to predict an impending recession.
  • Current economic data, including the consumer sentiment measure, suggests a positive trajectory, and inflation rates plunging faster than projected.
  • Opinions suggest that the Federal Reserve might likely cut rates this year provided inflation continues declining.
  • The forecast also anticipates the rise in corporate sales and profit margins alongside a welcome dampening of supply chain issues and labor shortages, thus positively impacting the inflation outlook.

As revealed by NABE’s recent survey, 91% of participants see a 50% or lower chance of the U.S. falling into a recession within the next year. This displays an increase in optimism from its 79% in their October analysis.

This contrasts with the previous year’s predictions when, amidst high inflation, the Federal Reserve increased interest rates. The move led most economists to anticipate a likely recession.

Rising Optimism

Recent economic data reinforces this growing optimism. This includes a consumer sentiment index that last week reached its highest level in two and a half years. Further, inflation has seen a more rapid fall than anticipated, and while the labor market has cooled, it hasn’t collapsed.

The Federal Reserve, which has maintained the policy rate at its current 5.25%-5.5% range since July, has displayed signals that they are open to reducing rates in this year if the inflation rate continues its downward trend.

Economists’ Expectations

Economists participating in the NABE survey predict a rise in corporate sales and profit margins for this year. They also indicate that the issues concerning the supply chain and labor shortages are resolving. This improvement could potentially affect the inflation outlook positively.

Positive Signs

The recent survey showed considerable improvements; 63% of the participants reported a lack of input material shortages, an increase from the previous 46%. Just over half reported no labor shortages, an improvement from the past 38%. Both signs are indicative of some of the best readings since the onset of the pandemic, according to NABE.

The survey also highlighted the primary threats to their business environment forecasts for the coming year such as increased interest rates, escalated geopolitical unrest, and increased costs.

Conversely, the biggest potential benefits to the outlook might come from slashed interest rates, reduced costs, and better availability of labor, according to the responding economists.

In forex trading or any financial market, these expected downward trends in inflation, improvements in corporate sales, and alleviation of labor shortages offer potential advantages. For instance, lower interest rates may affect tradable assets, specifically the U.S. dollar and its related currency pairs.

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