US Economy Will Skirt a Recession, Latest CBO Projections Show

The US economy will muster enough strength to avoid slipping into a recession even as higher interest rates and a pickup in unemployment weigh on consumers, fresh Congressional Budget Office estimates show.

(Bloomberg) — The US economy will muster enough strength to avoid slipping into a recession even as higher interest rates and a pickup in unemployment weigh on consumers, fresh Congressional Budget Office estimates show.

Gross domestic product is projected to rise at a 0.4% annual rate in the second half of this year, before steadily improving in 2024 and into the following year, according to the CBO. That’s despite some buckling in consumer spending over the remainder of this year because of higher borrowing costs and a drawdown in Americans’ pandemic-era savings.

The CBO’s latest projections for GDP represent a downgrade from its February forecasts, while the nonpartisan group raised its inflation estimates slightly.

Inflation is seen continuing to cool through 2025. The Federal Reserve’s preferred measure of inflation — the personal consumption expenditures price index — is seen rising 3.3% in the fourth quarter compared with the same period a year ago.

In 2024, it will moderate to 2.6% before moving closer to the Fed’s 2% target by the end of 2025. An increase in the jobless rate, a slowdown in demand and higher interest rates will help push the inflation rate lower.

So far, a resilient labor market and services sector have allowed the economy to continue expanding, and a growing number of economists have pulled back their forecasts for a downturn. A majority of business economists now say the odds of the US entering a recession in the next 12 months are 50% or less, according to a National Association for Business Economics survey.

Consumer spending, which has buoyed the economy despite a downturn in manufacturing, is expected to contract slightly in the fourth quarter because of tighter lending standards, higher interest rates and less pandemic-related savings. Outlays are projected to climb 1.1% in 2024, the agency says.

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