Dive Brief:

• The U.S. has a less than a 50% chance of tipping into recession this year, economists told the National Association for Business Economics in a survey, with 91% predicting no downturn. Only 9% of respondents predicted a recession compared with 18% in October.
• Results from the quarterly Business Conditions Survey “suggest broad improvement, with respondents reporting rising sales, profit margins and capital spending, while supply chains are improving,” Ellen Zentner, NABE president and chief U.S. economist at Morgan Stanley, said Monday in a statement.
• Affirming a disinflation trend, the share of panelists who reported declining prices at their companies rose, and those who expect prices to increase at their firms during the next three months fell to the lowest level since October 2020, the NABE said.

Dive Insight:

Not all data point to a recession-free 2024.

The Conference Board’s Leading Economic Index fell 0.1% in December, “continuing to signal underlying weakness in the U.S. economy,” Justyna Zabinska-La Monica, senior manager of the organization’s business cycle indicators, said Monday in a statement.

“Weak conditions in manufacturing, high interest rates and comparatively low consumer confidence offset positive factors in the index,” Zabinska-La Monica said, noting that the Conference Board expects the economy to shrink during the second and third quarters but start to recover late this year.

At the same time, more companies in January expect to raise wages in the next three months than in October, the NABE said. Also, a smaller share of firms reported a declining cost for materials than in October, and fewer panelists expect material prices to fall in the next three months.

“The path forward is not clear” for inflation, Carlos Herrera, chief economist for Coca-Cola North America and chair of the NABE survey, said in a statement.

“Seventy-two percent of panelists report that their firms are passing all or some of their cost increases to customers, and wages and material costs are expected to rise,” Herrera said.

Inflation inched up last month on price gains in shelter, medical care, vehicle insurance and other services, underscoring that the Federal Reserve may need to hold the benchmark interest rate at a 22-year high longer than previously expected.

The consumer price index rose 0.3% in December compared with 0.1% the prior month, and increased 3.4% on an annual basis from 3.1% in November. A 0.5% gain in shelter costs fueled more than half of the increase in inflation, the Bureau of Labor Statistics said. The Fed seeks to cap inflation at 2%.

In recent weeks New York Fed President John Williams and several other policymakers have tried to dampen market expectations for more cuts to the federal funds rate this year than what central bank officials predicted last month.

Policymakers have said a sustained decline in price pressures must precede any easing in policy. They currently keep the benchmark interest rate at a range between 5.25% and 5.5%.

While noting progress in their most aggressive fight against inflation in four decades, Fed officials last month said they will likely trim the main interest rate by the end of 2024 to 4.6%, according to their median projection released on Dec. 13. They next meet to discuss monetary policy on Jan. 30-31.

Traders in interest rate futures bet that the central bank has stopped raising the federal funds rate. They predict the Fed will begin easing in the spring and cut borrowing costs more than forecast last month, according to the CME FedWatch Tool.

Futures traders see 97% odds that the Fed will trim the main rate to a range between 4.25% and 4.5% by the end of this year, and 36% probability of a reduction to a range between 3.75% and 4%.

Higher interest rates pose the biggest risk to the outlook for U.S. companies, according to 53% of respondents to the NABE survey. They also cited geopolitical instability and inflation as top risks.