Mild Recession To His America In The Fourth Quarter Of 2023


According to Bank of America’s chief economist Michael Gapen, the US economy will likely experience a mild recession. Although the likelihood of a severe economic collapse now remains low. 

According to Gapen, a moderate recession is often what is needed to fix labor-market imbalances and bring inflation back down to the Federal Reserve’s 2% target. 

He stated, “I describe moderate as something a little lighter than the typical recession. According to him, BofA’s forecast rounds up to a 1% peak-to-trough loss in GDP, which is less than the historical average decline of 1.5%. 

The main difference between the prospects now and in previous downturns is labor shortages. CEOs believe the recession will be “short and shallow” due to labor shortages as well. 

“The bank stress situation remains stagnant; it isn’t getting much better but it isn’t getting much worse either. The employment and other expenditure numbers reveal an economy that is typically resilient underneath that, he said. 

CEOs Are Dreading The Forthcoming Recession

The US labor market is still robust, which would persuade the Fed to continue its tightening campaign even if interest rates have already increased from near-zero levels to above 5% since early 2022.

“Credit costs have increased and restrictions have undoubtedly tightened, which is a challenge. However, I continue to believe that there are positive forces at work that are keeping the economy in an expansionary phase and pushing the Fed to believe that more action is still necessary, Gapen said. 

Here is an illustration of how job losses could compound using the Federal Reserve Bank of Atlanta’s Jobs Calculator and peak unemployment predictions. A significant recession has the ability to drastically alter the economy and raise unemployment rates. However, a slight recession might only cause a slight increase in unemployment.

Of course, those who might have their employment eliminated are not going to think well of it.  

From the standpoint of stimulus, a little downturn is unlikely to result in further federal funding. During times of extreme unemployment, lawmakers have in the past approved stimulus payments. Americans shouldn’t expect to see a windfall hit their bank accounts since a moderate recession is unlikely to bring us there. CEOs keep saying the same thing about the American economy: a downturn is coming, but the job market’s steady strength will last. In such uncertain times, business leaders would typically be focused on eliminating costs and employment, but instead, they predict the job market to remain competitive. 

How Will The Economy Fare When The Mild Recession Hits?

The economy has experienced a series of shocks recently, including the pandemic, inflation, swift interest rate increases, and a brief banking crisis, but it still shows signs of resilience. This seeming cognitive dissonance is at the heart of the economy’s complexity. 

According to the CEO Confidence Index released by the Conference Board, where I serve as chief economist, the majority of senior executives worldwide predict a U.S. recession over the next 12 to 18 months for the fourth consecutive quarter. However, they anticipate that it will be brief and shallow, with little global impact. According to the survey’s second quarter iteration, a staggering 87% of CEOs envision this scenario, while only 6% predict a severe recession with worldwide spillover and just 7% predict no recession at all. 

The total confidence index, which is at 43, is barely above the lows seen during the worst of the epidemic due to CEOs’ general pessimism. (The Conference Board Measure of CEO Confidence is a quarterly poll that is carried out in collaboration with The Business Council among close to 150 CEOs. A reading below 50 indicates that there were more unfavorable than positive replies to the poll among the participants, who are members of The Business Council.) 

CEOs have previously stated in quarterly polls that they anticipate the Fed’s anti-inflationary measures to be the primary cause of this modest and transient U.S. economic slowdown. 

Even in the face of obvious predictions of recession and a continuing banking crisis, CEOs have continued to state that they back the central bank’s aggressive rate increases this quarter. In fact, according to 82% of CEOs, the Fed’s monetary policy decisions should be influenced by inflation. The CEOs rated the tight labor market (49%), financial stress and the possibility of a credit crunch (43%), GDP growth (28%), and debt ceiling uncertainty (1%), as being significantly less significant influencers on Fed policy. This viewpoint makes sense given that prevalent measures of consumer inflation frequently exceed the Fed’s 2% objective and the possibility of heightened inflation expectations being ingrained.  

CEOs seem to be handling the ongoing financial crisis well, and the majority of them do not believe it will directly or indirectly produce a big recession. Only 28% of CEOs who were asked about their alternative crisis solutions said they were strengthening their own company’s liquidity, and only 17% said they were changing their banking connections. Instead of taking drastic measures the majority of CEOs are “examining relationships.” 62% of CEOs are looking at their relationships with their banks. 28% are looking at their own risk management. 33% are looking at the liquidity adequacy of their customers. And 30% are looking at the liquidity adequacy of their suppliers.  

CEOs remain confident that the job market will defy predictions and remain mostly afloat. This judgment is supported by three sets of survey responses: First off, only 20% of CEOs want to cut back on staff in the upcoming year. Unexpectedly, 33% anticipate continuing recruiting, while a huge 46% predict no changes to staffing. Second, during the course of the upcoming year, 75% of CEOs aim to increase salaries by 3 percentage points or more. Only 5% of workers nationwide, however, either expect no changes to pay (4%) or want to reduce earnings (1%).  

Lastly, only 9% of CEOs anticipate no difficulties in finding qualified candidates, leaving 91% anticipate some or significant trouble.