S&P Global U.S. Forecast Update March 2023
Forecast of U.S. recession in 2023 reduced to growth pause
IHS Markit has changed its name to S&P Global. They have released their March 2023 forecast update for the U.S. The current forecast is based on the following assumptions:
- A transition from pandemic to endemic continues.
- The forecast assumes that the debt ceiling is raised in time to avoid default this summer and a budget is passed in time to avoid a government shutdown in October. The forecast reflects legislation enacted before December 29 and current corporate tax law and personal income tax policy. Pandemic-era programs expire on time (Child Tax Credit, SNAP extension, Medicaid increase). It does not include the cancellation of any student debt.
- The Fed is assumed to raise its policy rate to a range of 5.25%-5.50% by June, which is a 25 basis point increase from the February forecast. It temporarily overshoots the terminal range of 2.5%-2.75%. The Fed’s balance sheet declines by about one-third through 2024.
- Tariffs and trade agreements between the U.S. and China since 2017 are assumed to continue.
- Real foreign GDP contracted by 4.7% in 2020. Growth rebounded to 5.6% in 2021. The forecast calls for it to slow to 3.3% in 2022 and again to 1.8% in 2023, which is close to the S&P Global characterization of a global recession.
- The price of Brent crude oil rose to $113 per barrel in the second quarter of 2022, up from $80 per barrel in the fourth quarter of 2021. The price is forecast to drop to $85 per barrel in 2024, in response to slowing global growth.
The baseline forecast (summarized here) is assigned a 55% probability. The pessimistic scenario is assigned 25% and the optimistic scenario is assigned the remaining 20%. These are unchanged from February.
After increasing by 2.1% in 2022, the baseline forecast calls for real GDP growth to slow to 1.0% in 2023. Growth rebounds to 1.5% in 2024 and 2025. The economy is projected to be slightly stronger than expected last month, reflecting stronger recent growth.
On a quarterly basis, the forecast calls for real GDP to decline during the first and second quarters of 2023, although very modestly. The peak-to-trough decline is 0.1%, which S&P Global now characterizes as a growth pause.
With the March forecast, S&P Global has increased projected inflation rates in 2023 and 2024 and lowered forecasts for the unemployment rate. Essentially, the labor market stays hotter longer which generates a slower reduction in inflation.
Headline inflation spiked in 2022 to 8.0%. It is forecast to decelerate to 4.4% in 2023 and 2.7% in 2024, 0.4 percentage points higher each year than in the February forecast.
The unemployment rate peaked at 8.1% for the year in 2020 but fell to 5.4% in 2021 and again to 3.6% in 2022. It is forecast to remain at 3.6% in 2023 and rise to 4.1% in 2024.
Nonfarm payroll jobs nationally dropped by 5.8% in 2020 but rebounded with growth of 2.9% in 2021 and 4.3% in 2022. The forecast calls for jobs to rise by 1.6% in 2023 and then decline by 0.4% in 2024.
Housing starts surged in 2021 to 1.61 million units. Activity remained strong in 2022 at 1.56 million. The forecast calls for starts to drop to 1.18 million in 2023 as interest rates take a toll on housing activity. Starts rebound to 1.25 million in 2024 and 1.37 million in 2025.
Exhibit 1 summarizes the March 2023 forecast from S&P Global. Exhibit 2 shows the February 2023 projections and Exhibit 3 shows the difference.
Exhibit 1: S&P Global March 2023 Forecast for the U.S., Over-the-Year Percent Change or Level
Exhibit 2: S&P Global February 2023 Forecast for the U.S., Over-the-Year Percent Change or Level
Exhibit 3: Differences in S&P Global U.S. Projections: March 2023 Versus February 2023 (Percentage Point Differences, Except for Housing Starts)
