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S&P Global U.S. Forecast Update May 2023

May 12, 2023
By George W. Hammond, EBRC director and Eller research professor

Tightening lending standards pull down U.S. forecast for 2023 and 2024

Phoenix Forecast Flash April 20 - 2020

S&P Global have released their May 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 as well as 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 5.00%-5.25% by May (which happened after the forecast was released). 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 and then decelerated to 2.2% in 2022. The forecast calls for it to slow again in 2023 to 1.9%.
  • 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 $84 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 April.

After increasing by 2.1% in 2022, the baseline forecast calls for real GDP growth to slow to 1.2% in 2023 and 0.9% in 2024. The economy is projected to be weaker than expected last month, reflecting additional tightening of lending standards.

On a quarterly basis, the forecast calls for real GDP to decline slightly in the second quarter of 2023 before posting slow, positive gains through the remainder of the year and into 2024. Stability in the second quarter reflects the impact of tightening financial conditions and uncertainty surrounding the debt limit on economic activity.

Headline inflation spiked in 2022 to 8.0%. It is forecast to decelerate to 4.2% in 2023 and 2.5% in 2024.

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 4.3% 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 2.0% in 2023 and then decline by 0.1% in 2024.

Housing starts surged in 2021 to 1.61 million units. Activity remained strong in 2022 at 1.55 million. The forecast calls for starts to drop to 1.34 million in 2023 and 1.32 million in 2024, as interest rate increases take a toll on housing activity.

Exhibit 1 summarizes the May 2023 forecast from S&P Global. Exhibit 2 shows the April 2023 projections and Exhibit 3 shows the difference.

Exhibit 1: S&P Global May 2023 Forecast for the U.S., Over-the-Year Percent Change or Level

blog-5-12-23-exhibit-1.

Exhibit 2: S&P Global April 2023 Forecast for the U.S., Over-the-Year Percent Change or Level

blog-5-12-23-exhibit-2.j

Exhibit 3: Differences in S&P Global U.S. Projections: May 2023 Versus April 2023 (Percentage Point Differences, Except for Housing Starts)

Name blog-5-12-23-exhibit-3.