Don’t sound the “all clear” siren yet.
In February, when the Dow Jones Industrial Average had fallen nearly 15%, concerns grew that the U.S. economy was slipping into recession. Those fears have since subsided in financial markets, but most economists continue to see an elevated risk of the U.S. falling into a new recession within the next 12 months.
Forecasters in the latest Wall Street Journal survey of business, academic and financial economists estimated, on average, that the U.S. had a 20% chance of falling into recession in the next year. That was up slightly from the 19% in last month’s survey. While 1-in-5 odds are far from a slam dunk, they are double the odds from as recently as September.
“Decelerating employment growth, growing uncertainty and sputtering GDP growth does not portend well,” said Chad Moutray, chief economist at the National Association of Manufacturers.
The economy grew at a 0.5% annual pace in the first quarter of the year, according to the most recent Commerce Department reading. The most recent monthly jobs report showed the pace of job growth slowing as well.
This rough start to the year prompted economists to lower their estimates for economic and job growth this year. The average forecast now calls for 1.9% growth this year, down from 2.1% in last month’s survey. Over the next 12 months, the economy will add about 180,000 jobs, they estimate, down from 185,000 last month and 190,000 in March.
Even after making these downgrades, 63%% of economists think the risks to the economy are to the downside. In other words, if their forecasts are wrong, economists think it’s because they’re probably too optimistic.
Since recession risks first rose late last year, the biggest risk has consistently been the chance that China’s economy would falter or that the dollar would be too strong, and that a slowdown in international trade would weigh the U.S. down.
While a global slowdown is still identified as the biggest risk, the forecasters see elevated risks coming from the U.S. political process as well. About 42% of respondents say uncertainty from the election is already harming the U.S. economy, at least somewhat, because business investment can be challenging when the potential range of political outcomes is so wide.
The Wall Street Journal surveyed 70 economists from May 6 to May 10, though not every respondent answered every question.