WASHINGTON (TIP)- The US economy is now expected to narrowly dodge a recession this year but underlying inflation will be faster than previously thought, according to the latest Bloomberg monthly survey of economists. Gross domestic product is now forecast to only contract in the final three months of the year, and it’s projected to merely stagnate in the third quarter instead of shrink, the June survey showed. While estimates were marked up for the current quarter and next — due to stronger consumer spending and upward revisions to business investment — GDP growth is seen slightly weaker through the end of 2024.
At the same time, economists see the personal consumption expenditures price index, excluding food and energy, rising at a faster pace over the next year than they did in the May survey. That corroborates the Federal Reserve’s view as well, supporting policymakers’ assertion that another two interest-rate hikes will probably be appropriate this year.
According to the median forecast, economists see one more rate hike in the third quarter, with the federal funds rate holding in a 5.25%-5.5% range through yearend before an expected quarter-point cut in early 2024.
The survey of 71 economists from June 16-21 showed stronger views of the labor market. Forecasters mostly see increased hiring this year and next, and they also expect the unemployment rate will peak at a slightly lower level. That helps explain projections for sustained consumer spending.
The findings also support the notion that the housing market bottom has passed. While sales of previously owned homes are struggling for momentum, buyers are seeking new construction and builders have been responding to demand. Economists see that trend continuing with higher new-home sales over the next year and more housing starts.
US jobless claims hold at 20-month high
The number of people filing for state unemployment benefits for the first time held steady at a 20-month high last week, remaining elevated for a third straight week in what may be an early indication of a softening labor market in the face of the Federal Reserve’s aggressive credit tightening.
The housing market, meanwhile, showed further signs of stabilizing last month after standing out last year as the sector most visibly upended by the Fed’s rate hikes. However, selling prices for existing homes – the largest slice of the U.S. residential property market – tumbled from a year earlier by the most in more than a decade, a demonstration of the choppy nature of the recovery underway.
Data from the Bureau of Labor Statistics on Thursday showed 264,000 new claims were filed for jobless benefits on a seasonally adjusted basis in the week ended June 17, unchanged from the prior week’s upwardly revised level, which is the highest level of initial claims activity since October 2021.