A year-long recession is on the horizon for the U.S., but it may be what the economy needs to cure inflation, says Sean Snaith, national economist and director of UCF’s Institute for Economic Forecasting, in his latest U.S. Economic Forecast.
“The U.S. economy is very close to, if not already in, a recession,” Snaith says. He has dubbed this the “Pasta Bowl Recession” due to its low and shallow shape. While the recession may not be deep, he expects it to likely last four quarters — representing the wide part of the bowl.
“When we emerge from this recession, there will not be a rocket-propelled recovery as we experienced in 2020,” he says. “We will emerge slowly out of the pasta bowl, the same way we entered it.”
In May 2009, Snaith accurately predicted the end of the Great Recession and forecasted the gradual recovery that followed with another culinary descriptor: the gravy boat recession.
He predicts the mild slowdown should help the Federal Reserve bring inflation to heel while giving the global supply chain time to return to normal and allowing gas and oil prices to come down. The Fed, late to the inflation show, has shifted gears from fighting COVID effects to fighting inflation, Snaith says, and rapid rate hikes are expected.
While U.S. consumers had been powering this recovery, high gasoline prices and rising food and housing costs have eroded their purchasing power and set the stage for a recession, Snaith says.
The U.S. economy, as measured by Real Gross Domestic Product, which was -3.4% in 2020 before accelerating to 5.7% in 2021, will ease to 1.4% in 2022, according to the forecast. It will then contract by 0.2% in 2023 before slowly rising to 1% in 2024 and 1.8% in 2025.
Consumption spending accelerated to 7.9% in 2021 but is expected to ease to 2.3% in 2022 and 0.4 percent in 2023 before slowly rising to 1.1% in 2024 and 1.5 percent in 2025.
Payroll job growth of 3.7% in 2022 will turn negative in 2023 and fall to -0.3% and then to -1% in 2024 before turning slightly positive at 0.6 percent in 2025.
The housing market remains tight, Snaith says. High prices plus rising mortgage rates are eroding demand, and ultra-low inventories will underpin the sector. Housing starts are expected to decline from 1.6 million in 2022 to 1.4 million in 2023, then hover at this level through 2025.
More than 11 million job openings will provide a shock absorber for the impact of the recession on the labor market. The headline unemployment rate is expected to rise from 3.6% in 2022 to 6.5% late in 2024 before gradually declining in 2025.
The Institute for Economic Forecasting strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses.
Snaith is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.