Economic Forecast: A Mixed Bag
The latest survey from The Wall Street Journal reveals that economists are predicting stronger economic growth, a healthier labor market, and lower recession risk. However, some experts remain skeptical due to the imperfect nature of available data.
Survey Findings
The Journal’s quarterly survey indicates that economists expect inflation-adjusted economic growth to reach an annualized rate of 1% by the fourth quarter of 2025. This is a modest improvement from the 0.8% forecast in April, but half of what was expected in January. The panel also anticipates growth rebounding to 1.9% in 2026. The likelihood of a recession in the next 12 months is estimated at 33%, an improvement from April’s 45% estimate but worse than January’s 22%.
Impact of Tariffs
Tariffs have already had a significant impact on the economy. The US is experiencing its lowest industrial construction rate in a decade, and there is evidence of a causal link between higher tariffs and increased retail prices. New tariffs have been announced, including 50% on copper, 35% on Canadian imports, and 30% on goods from the European Union. The situation remains uncertain, with threats of steep tariffs on Russia and its trading partners if the war in Ukraine does not end within 50 days.
Challenges in Tracking Disruptions
The difficulty in tracking disruptions in the economy in real-time has fueled concern among economists. Fortune reports that it is challenging to determine how the costs of tariffs are distributed among importers, exporters, and US buyers. Economist Claudia Sahm notes that "nobody wants to pay the tax, so who is the weakest link?" This uncertainty makes it difficult to predict how businesses and consumers will respond to tariffs.
Absorbing the Cost
For now, importers or their customers may be absorbing the cost of tariffs through slimmer margins. However, this may not be sustainable if postponed tariffs are reinstated or new ones are introduced. Many companies stockpiled inventory before tariffs took effect, further complicating the situation. As a result, it is unclear how the economy will respond to the ongoing trade tensions.
Lagging Economic Data
Key economic data, such as the Consumer Price Index (CPI) inflation data, lags behind current events. The latest CPI data only covered May, and the next report will not be released until mid-July. This delay makes it difficult to determine whether inflation is staying flat or poised to take off. As a result, economists and businesses are in "wait and see" mode, cautiously optimistic but aware of the ongoing uncertainties.
Conclusion
In conclusion, the economic forecast is a mixed bag, with some positive signs but also significant uncertainties. While economists predict stronger economic growth and lower recession risk, the impact of tariffs and the lagging economic data make it difficult to draw firm conclusions. As the situation continues to evolve, it is essential for businesses and consumers to remain vigilant and adapt to the changing economic landscape. For now, confidence is improving, but it is crucial to monitor the situation closely and be prepared for any potential disruptions.
