In his latest U.S. writeup, Sean Snaith takes on ChatGPT’s economic forecasting prowess to discern whether a recession is coming and when the Federal Reserve will stop raising rates.
The good news: Snaith, director of UCF’s Institute for Economic Forecasting, is likely to keep his job — for now. The bad: even AI is worried about the national debt.
After last week’s downgrade of U.S. credit, the bots (and us humans) have reason for concern, Snaith says, pointing to his forecast prediction of a $40-trillion-plus national debt by 2026.
“At some point, it’s going to catch up to us with potentially catastrophic results,” he says. “Government budget management has become a series of resolutions, stand-offs and spending without any real discussions about fiscal priorities or consequences.”
Slower-than-projected economic growth, a recession and hiked interest rates would all push deficits even higher, says Snaith, whose predictions on these and more are available in his quarterly U.S. forecast out today (complete with ChatGPT-composed song lyrics about inflation for the budding economist musicians out there).
A Recession is ‘Definitely Maybe’ On Its Way
Last month’s better-than-expected gross domestic product report suggests the United States might escape a recession this year, Snaith says.
Coupled with the strength of the labor market, what was once a near-certain downturn is now “definitely maybe,” Snaith forecasts in his report.
“All indicators said the U.S. was headed into recession, but you’ve got a resistant labor market that doesn’t want to buckle under the weight of these higher interest rates — something that historically should have happened,” Snaith says.
“Ultimately, it’s the labor market’s resiliency that is keeping any recession at arm’s length and stiff-arming it into the future.”
Still, Snaith says economic woes from inflation will persist for some time, and he predicts consumer spending may give way to the erosion of real income in the second half of 2023.
“Some of the recent slowdowns in inflation should provide a floor to keep consumers from falling too far, but the real damage has already been done,” Snaith says.
Additional highlights from Snaith’s four-year U.S. economic forecast include:
- During the 2023-26 period, federal government spending growth is going to be slightly negative, growing at an annual average pace of 1.1% and consistently averaging nearly $1.85 trillion. The amount that the projected deficits will add to the national debt over the next four years will be more than $7.4 trillion, pushing the total national debt to more than $40 trillion and a debt-to-GDP ratio of 141%.
- U.S. consumers powered the 2020 recovery. Following the end of most lockdowns, consumers were ready to spend. Since then, high energy prices, food costs and housing costs have steadily eroded their purchasing power. While credit card debt and drawing down savings have temporarily patched the hole in their monthly budgets, this loss of purchasing power has set the table for an approaching economic slowdown.
- The housing market remains tight. High prices plus 7% mortgage rates have eroded demand. However, persistently low inventories will reinforce the sector. Housing starts will decline from 1.6 million in 2022 to 1.4 million in 2023 to 1.3 million in 2024, and remain at this level through 2026.
- Core consumer price inflation will continue a slow decline in the latter half of 2023, even as energy prices are likely to push the headline consumer price index higher. By the end of 2024, inflation will be close to the Fed’s target level of 2%, and interest rate cuts are unlikely to happen before this target is reached.
Snaith is a nationally recognized economist in the field of economics, forecasting, analysis and market sizing. He has been recognized by Bloomberg News as one of the country’s most accurate economic forecasters and has served as a consultant for both local governments and multi-national corporations. Before joining UCF’s College of Business, Snaith held faculty positions at Pennsylvania State University, American University in Cairo, the University of North Dakota and the University of the Pacific.