NABE increases expectations for inflation; majority put odds of recession this year at greater than 25%


Economists raised their expectations for inflation rates this year and next and cited concerns over a potential US recession, according to the “Outlook Survey” report released by the National Association for Business Economics. More than half of respondents, 53%, estimate the odds of a recession within the next 12 months are greater than 25%.

“NABE Outlook Survey panelists continue to ratchet up their expectations for inflation rates in both 2022 and 2023,” said NABE President David Altig, executive VP and director of research, Federal Reserve Bank of Atlanta.

While the panel sees inflation peaking this year, projections for the core personal consumption price index have been revised upward by a full percentage point, Altig said.

“Seventy-seven percent of the panelists indicate the risks to US economic growth are tilted to the downside this year, with monetary policy missteps representing the greatest downside risk,” added Survey Chair Yelena Shulyatyeva, senior US economist, Bloomberg.

NABE panelists also assessed when a recession is likely to hit the economy. Fifty-three percent of respondents said there is a 25% probability of a recession occurring within the next 12 months, while 40% suggest the probability to be between 11% and 25%. Meanwhile, 27% of respondents believe a recession will occur in the second half of 2023, and 25% expect a recession either by the end of the year or in the first half of 2023.

One-third suggested a recession will not occur until 2024 or later.

Overall, the panelists’ views on the downside risks to the US economic outlook through 2022 are similar to those in the previous survey, with 40% citing that the greatest downside risks to the US economic outlook include monetary policy missteps. Thirty-four percent believe the war in Ukraine prompted a global slowdown in economic growth.

The share of respondents citing concerns about monetary policy missteps and geopolitics increased in May from the February 2022 report, while the percentage of survey respondents citing worries about supply chains declined. Easing in supply-chain constraints is listed often as an upside risk to the outlook, as are stronger wage and productivity growth and a quick resolution to the war in Ukraine.

Other findings:

  • The panel expects nonfarm payrolls to increase by a monthly average of 363,000 in 2022, up from the 317,000 anticipated in the February 2022 survey. However, the quarterly median forecasts imply that the largest monthly employment gains have already occurred. The median forecast calls for payrolls to increase by an average of 383,000 per month in the second quarter of this year and then by less than 300,000 per month in the second half of 2022. Monthly payrolls had increased by an average of 562,000 in the first quarter.
  • The unemployment rate is projected to decrease marginally through the third quarter of this year and to then hold steady until edging higher in the second half of 2023. The median forecast calls for the unemployment rate to fall to 3.5% by the end of the year. Then the median forecast calls for the unemployment rate to increase to 3.7% by the end of 2023 — marginally higher than the 3.5% projected in the February 2022 survey.
  • Nonfarm business compensation per hour is projected to increase at 5.4% this year, up from 5.3% in the February survey and higher than the actual 5.2% increase in compensation per hour in 2021.
  • Additionally, 54% of panelists consider the potential for a wage-price spiral a major risk to growth this year. Nineteen percent believe a wage-price spiral is already underway, while another 19% cited stronger wage growth as an upside risk to economic growth.

The report presents the consensus macroeconomic forecast of a panel comprising 53 professional forecasters; the survey took place from May 2 to May 10.