Economists are increasingly less worried about a recession in 2023

The much talked about recession of 2023 is still not here, and economists are becoming less confident that it will come at all.

This week, Wells Fargo’s team of economists became the latest group to dial back its recession outlook. The firm now sees a recession hitting in early 2024 as fresh economic data reveals an economy “not yet on the brink of recession.”

“While we still expect the lagged effects of monetary tightening and tighter credit availability to dampen economic growth, the economy has proven to be more resilient than we expected,” Wells Fargo̵[ads1]7;s team of economists wrote in a note to clients on Wednesday. “As a result, we have pushed back our expectations for the start of the economic slowdown to Q1-2024.”

Wells Fargo isn’t the only one growing more optimistic about the outlook for economic expansion in 2023. Goldman Sachs cut the odds of a recession this year from 35% down to 25% earlier this week. Capital Economics teased in a Wednesday note that it plans to push back its recession for the third quarter. Bank of America chief economist Michael Gapen explained to Yahoo Finance Live that there is an increasing path to a “soft landing” or a mild recession. There’s even a case for no recession, according to what Goldman Sachs COO John Waldron told Bloomberg earlier this week.

The positive outlook follows economic data that economists often refer to as “resilient”. The US labor market added 339,000 jobs in May, the largest monthly increase since January. Jobs in April also surprised on the upside. All while consumers continue to spend despite sticky inflation.

As of Thursday, the Atlanta Fed estimates the U.S. economy will grow 2.2% in the second quarter, marking the fourth straight quarter of gross domestic product growth. Typically, two consecutive quarters of GDP decline would be considered an official recession mark.

“We now suspect that the economy is unlikely to fall into recession already in the third quarter, as we had previously expected, and that it will take longer before a meaningful downturn in the labor market materializes,” wrote Capital Economics on Wednesday.

The recession debate comes as Wall Street wonders how the economy will respond to the Federal Reserve’s most aggressive rate hike campaign in 40 years. The economy can come down from the rate hikes with a ‘hard landing’, where the Fed induces a deep recession and unemployment jumps significantly, or a soft landing, where the US economy slows down only slightly.

Gapen notes that the “mild recession” he and BofA forecast is consistent with the description of a soft landing. The odds of this have increased overall in recent weeks as the credit fallout from the Silicon Valley Bank collapse appears to have moderated and the debt ceiling debate in Washington has been resolved.

“Unless banking stress worsens and a credit crunch is revealed, it’s harder to see where the hard landing risk is coming from at the moment,” Gapen told Yahoo Finance Live.

Economists are increasingly less worried about a recession in 2023

A general view of Pacific Western Bank in Huntington Beach, California, U.S., March 22, 2023. Pacwest has been one of several regional banks under stress since the collapse of Silicon Valley Bank. REUTERS/Mike Blake

There are still bearish calls for the economy out there. Morgan Stanley sees corporate earnings falling 16% by the end of the year, while analysis by Bespoke Investment Group showed investors haven’t bet so heavily on a fall in the S&P 500 since 2007.

But the stock market is considered a forward-looking indicator, and the Nasdaq is up over 26% this year, while the S&P 500 is almost in a bull market. So if a hard-hitting recession is still coming in 2023, markets aren’t pricing it in.

Josh is a reporter for Yahoo Finance.

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