The Conference Board Economic Forecast for the US Economy

The Conference Board forecasts that weaknesses emerging in some parts of the economy will grow larger and more diffuse over the coming months, leading to a recession. This outlook is associated with persistent inflation, Federal Reserve hawkishness, fallout from the banking crisis, and recent trends in consumer spending and business investment. We forecast that real GDP growth will slow to 0.7 percent in 2023, and then fall to 0.4 percent in 2024.

While consumer spending was a tailwind for overall GDP growth in Q1 2023, monthly data shows that this was associated with a spike in spending in January. Favorable weather, Social Security COLA adjustments, and vehicle sales appear to have played a large role in spending activity that month. However, January aside, real consumer spending contracted in November, December, February and March. We expect this trend to continue as high inflation, high interest rates, and a cooling labor market further curtail demand.

Meanwhile, business investment continued to cool in Q1 as high interest rates and concerns about the future weighed on companies. These trends will likely worsen as interest rates continue to inch up (we project an additional 25 basis point Fed hike in June) and credit conditions continue to tighten (due to fallout associated with the banking crisis). Government spending represents one positive driver for growth in 2023 as federal non-defense spending benefits from outlays associated with infrastructure investment legislation passed in 2021 and 2022.

Because the pace of the slowdown in consumer spending has not been as severe as previously forecasted we are upgrading our forecast for Q2 2023 from -1.8 percent to -0.6 percent and Q3 2023 from -1.8 percent to -1.6 percent. However, we now expect the weakness in economic activity to persist into early 2024 and have downgraded our forecast for Q4 2023, Q1 2024, and Q2 2024.

On inflation, we expect to see progress over the coming quarters but the path will be bumpy. In Q2 2023, we forecast a large decrease in the reported year-over-year PCE deflator due to base effects. However, this does not mean the fight to tame inflation is over – far from it. We expect year-over-year inflation readings to remain at about 3 percent at 2023 yearend and that the Fed’s 2 percent target will not be achieved until the end of 2024.

Labor market tightness will moderate somewhat over the coming quarters, but will remain elevated relative to previous economic downturns reflecting persistent labor shortages in some industries. This should prevent overall economic growth from slipping too deeply into contractionary territory and facilitate a rebound next year.

Looking to 2024, we expect the volatility that dominated the US economy over the pandemic period to diminish. In the second half of the year we forecast that overall growth will return to more stable pre-pandemic rates, inflation will drift closer to 2 percent, and the Fed will bring rates back below 4 percent. However, due to demographic challenges we expect tightness in the labor market to remain an ongoing challenge for the foreseeable future.