Based on our RSM forecasts, US economic growth will likely reach 2.35% in the first quarter, contrasting with estimates of 2% from other sources.
But this growth will not last long, and there is a growing consensus among other economists that the economy will slip into recession this year, making the debate over identifying the end of the business cycle necessary.
RSM now predicts a 75% chance of a recession over the next 12 months, higher than its previous forecast of 65% for the second half of the year, a change driven by the increased likelihood of tighter lending standards following recent turmoil in the banking industry.
Recessions are more likely after periods of economic strength. The R word we should use when it comes to the American economy should be resilience, not recession. The fact that we have not yet seen a recession despite nearly two years of rising inflation and interest rates is something that needs to be analyzed and understood.
But that resilience appears to be faltering. Federal Reserve rate hikes are beginning to curb growth, and tighter lending will likely further cool the economy in coming months. Despite that resilience, the risk of a recession cannot be discounted.
Business Cycle
The current economic cycle will likely go down as one of the shortest in American history.
In three years, the economy went from a health crisis-induced shutdown to a rapid recovery to a monetary policy-induced slowdown.
While it is the role of the National Bureau of Economic Research to identify the peaks and troughs of each business cycle after the fact, it is equally important for businesses and households to analyze the economic ups and downs and plan for the future.
Let's start with the NBER's definition of a recession. A recession is a significant decline in economic activity that is widespread throughout the economy and lasts for more than a few months. The NBER's analysis treats three measures of a recession – its depth, spread, and duration – somewhat interchangeably.
