'Soft Landing VS Recession'... US Economic Outlook Uncertain

Avoiding GDP Growth Rate Contraction
Hope Persists Despite Inflation Slowdown
Low Likelihood of Personal Consumption Recovery
Rising Unemployment Fuels Recession Concerns

Experts are divided on whether the U.S. economy will achieve a soft landing or face a recession next year. On one side, some predict a gradual slowdown in the U.S. economy, citing decelerating inflation and consumer spending, while others foresee a recession due to the sluggish recovery of private consumption.

Consumption and Inflation Decline, but Economic Growth Holds Up... Soft Landing Expected

The Wall Street Journal (WSJ) on the 15th (local time) introduced the differing expert forecasts regarding the future outlook of the U.S. economy. Nancy Vanden Houten, a U.S. economist at Oxford Economics, a British economic analysis firm, stated, "The U.S. economy is expected to weaken considerably next year, but a complete contraction in GDP growth is unlikely."

Supermarket in California
Photo by AFP Yonhap News

She anticipated that the recent trends of falling inflation and slowing consumption would continue. In October, the U.S. Consumer Price Index (CPI) rose 3.2% year-over-year, a slower increase compared to the previous month (3.7%) and below market expectations (3.3%). The core CPI, which excludes volatile food and energy prices, recorded 4.0%, down from 4.1% the previous month. The annualized change in core CPI over the past five months was 2.8%, significantly lower than the 5.1% annualized rate recorded in the first five months of the year.

The slowdown in CPI appears to be due to a tapering wage growth that had surged amid labor shortages. Last month, average hourly wages for workers increased by 4.1% year-over-year, marking the smallest increase since June 2021.

However, she predicted that the decline in economic growth would not be significant. Experts, including her, expect the U.S. real Gross Domestic Product (GDP) growth rate to slow to 1.7% next year after recording growth this year. This forecast is 0.3 to 0.4 percentage points higher than previous estimates. It suggests that the U.S. economy can maintain a solid trajectory despite the easing inflation trend. WSJ explained, "In fact, these indicators imply that the U.S. economy is approaching a so-called soft landing, where inflation returns to pre-COVID-19 levels without a recession or major economic weakness."

Private Consumption Recovery Unlikely... High Risk of Recession

On the other hand, another group of experts warns that the U.S. economy will enter a recession next year. The main reason is the low likelihood of recovery in private consumption, which accounts for 70% of U.S. GDP. Last month, U.S. retail sales rose 2.48% year-over-year but recorded a decline for the first time in five months since May.

As a result, despite the year-end shopping season, the retail industry is facing a surge in excess inventory. Jeff Bornino, head of North American operations at TMX Transform, a U.S. supply chain consultancy, reported, "Currently, U.S. retailers are facing a situation where 15-20% of products occupying store shelves must be discarded."

[Image source=AFP Yonhap News]

There are also concerns about rising unemployment. Last month, the U.S. unemployment rate reached 3.9%, the highest since January last year. An increasing unemployment rate is considered a leading indicator of recession. According to the Shum Recession Indicator, if the unemployment rate rises more than 0.5 percentage points above its lowest level in the past 12 months, the economy is likely to enter a recession. Currently, this indicator stands at 0.33 percentage points. Given this trend, economists predict that if the unemployment rate rises from 3.9% last month to 4.0% this month and 4.1% next month, the likelihood of a recession will increase significantly.

There are already voices suggesting that the U.S. economy is experiencing deflation, with both inflation and economic activity slowing across industries. Cathie Wood, CEO of ARK Investment Management, known as the "Money Tree Sister," stated that the U.S. CPI "could turn negative at some point next year," and that the deflation trend, which recently began with raw materials, is spreading to sectors such as aviation and automobiles.

This content was produced with the assistance of AI translation services.