For over a year, leading US economists and market observers have been sounding the alarm about the increasing likelihood of the US economy teetering into a recession. Factors such as record-high inflation and elevated interest rates have raised concerns about the stability and future trajectory of the world’s largest economy, with many experts seeing a recession as an inevitable outcome.
However, not all economists share these observations. Notably, Mark Zandi, head economist at a prominent financial intelligence and analytics firm Moody’s Analytics, believes that these recession predictions have been “off-base,” he said in his opinion-based article for CNN on June 20.
“Given history, there’s no shame in the consensus that we would follow a familiar recession pattern now. However, this time is different.”the economist said.
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Zandi acknowledged that the US economy currently looks “vulnerable to losing the script” and that the country has “been off script more often than not in recent years.”
“But odds are that we will buck history and avoid recession.”
Zandi’s 5 reasons why US recessions will likely evade recession
In support of his claims, Zandi named five key factors that he believes could help the US economy evade a downturn.
Primarily, the expert economist mentioned “excess savings,” which the US consumers have been accumulating during the pandemic era. According to Zandi, consumers have been using those savings “to supplement the purchasing power that was eroded by high inflation” and “just enough to keep the economy moving forward.”
Secondly, the strong resilience of the labor market due to “labor hoarding” is another reason why the US has a good chance of avoiding a recession, Zandi stated. Local companies have been desperate to retain employees after facing significant challenges during and before the pandemic when it comes to talent hiring.
Then, Zandi listed “light debt loads” as the third factor that could help prevent an economic downturn. Because they have been cautiously borrowing since the global financial crisis in 2008, US households “shell out less of their income on interest and principal payments on their debts than at any time recorded in history,” he added.
The numbers four and five relate to “anchored inflation expectations” and “low oil prices,” the financial expert said. Inflation rates in the US have been on a constant downward trajectory since peaking at 9.1% in June 2022, which could prevent the Federal Reserve-induced recession many other banks and economists have been forecasting in recent months.
Finally, Zandi explained how previous recessions have been typically “preceded by a spike in oil prices,” although that is not the case right now, as a mix of macroeconomic headwinds led to a notable drop in crude prices in 2023.