Moody’s chief economist lays out 5 reasons why the US will avoid a recession
But Dr. Mark Zandi, who directs economic research at Moody’s Analytics, on Tuesday laid out five reasons why he’s “betting against a US recession” in 2023, noting that despite what pessimists say, “we haven’t suffered a recession, and the odds are that we won’t.”
Writing that economists, investors and CEOs have signaled “for over a year” that “an economic downturn is all but certain,” Zandi argues that with “each passing month, the consensus looks increasingly off-base.”
Zandi laid out his “top five reasons” for betting against a U.S. recession:
1: Excess savings.
Zandi argues that consumers, buoyed by savings amassed during the height of the COVID-19 pandemic, “are the firewall between recession and a growing economy.”
“The firewall is holding firm,” Zandi writes, noting while consumers “have not been spending with abandon,” they’ve spent “just enough to keep the economy moving forward.”
2: Labor hoarding.
Pointing to a June 2 report that showed the U.S. economy blew through job gains expectations in May, Zandi says companies “desperately want to avoid layoffs.” Zandi argues that companies understand labor shortages “will be a persistent problem” for businesses even after the COVID-19 pandemic “as the Baby Boomer generation retires in the coming decades.” Those labor shortages, Zandi notes, are already prompting companies to “rely increasingly on foreign immigrants to fill jobs at all skill levels.”
3: Light debt loads.
Zandi writes that household borrowing has remained prudent since the Global Financial Crisis in 2007-2008.
“Households now shell out less of their income on interest and principal payments on their debts than at any time recorded in history, except at the height of Covid-19, when pandemic relief included a moratorium on some mortgage and student loan payments,” Zandi writes.
The leading economist says many borrowers took advantage of historically low interest rates “and are largely insulated from” the Fed’s “currently higher rates.”
4: Anchored inflation expectations.
Consumer optimism is bolstered by the Fed’s ability to “raise rates high enough and fast enough to slow growth and quell inflation, but not so high and so fast that it undermines the economy,” Zandi writes. In a self-fulfilling prophecy of sorts, the Moody’s analyst argues, “If consumers and businesses believe the Fed will do what is needed to ensure inflation recedes, then they will behave accordingly. And that makes it more likely to come true.”
5. Low oil prices.
"Oil prices are down, and so too is inflation, both in the US and globally," Zandi writes. That may not be good news for the planet news for the planet, but it certainly means the economy will keep a-churning.
“Yes, the economy is fragile and vulnerable to losing the script,” Zandi writes. “But odds are that we will buck history and avoid recession.”
