Economy of the United States defies recession skeptics, as GDP grows and private employment surges, boosting hiring prospects.
U.S. Economy Shows Resilience with Strong Q2 Growth
The U.S. economy demonstrated its resilience in the second quarter of 2023, as it reported a stronger-than-expected growth of 3%. This growth, however, did not receive any direct assistance from the government, as federal outlays declined by 3.7%.
Employers have grown more optimistic that consumers will remain resilient, with private employers adding 104,000 jobs last month. This hiring trend reversed a 23,000 drop in June, and the leisure and hospitality sector led the growth with 46,000 new jobs.
The surge in GDP did not go unnoticed, as economists praised the healthy state of the economy. Nela Richardson, ADP's chief economist, stated that the hiring and pay data indicate a robust economy.
However, the growth in GDP does not necessarily mean a smooth sail for the economy. Inflation remains "sticky" but has moderated from peaks in 2022. Key inflation measures are expected to settle around 2.5%-3% in 2025. Additionally, the slowing growth, sticky inflation, and tariff-related price pressures suggest a cautious outlook for 2025.
Current predictions for a US recession following the stronger-than-expected growth in Q2 2023 indicate that a recession is unlikely in the near term but growth will slow significantly in 2025. Most analyses foresee continued economic growth, albeit at a more modest pace compared to recent years.
The probability of a recession over the next 12 months is low, with one outlook assigning only a 15% chance for 2025. Economists surveyed by the Wall Street Journal reduced their recession probability estimate from 45% (April 2025) to 33% (July 2025).
Economic growth is expected to continue, driven by structural changes in the economy, capital inflows, and robust investment. Baseline GDP growth forecasts for 2025 are around 2.5%, above the post-2008 trend of 1.8%.
Despite the slowdown risks, the Federal Reserve is expected to maintain a higher terminal interest rate than previously thought, reflecting this new economic regime, and may begin cutting rates by the end of 2025 to support growth.
Consumer confidence largely rebounded, but the share of consumers viewing jobs as "hard" to get jumped to the highest level in more than four years. Demand from businesses and consumers, also called final sales to private domestic purchasers, rose at a 1.2% rate in the second quarter.
Gross domestic product (GDP) increased after a 0.5% decline in the first quarter. Financial activities, trade, transportation and utilities, and construction also added significant hires. On the other hand, education and health services lost 38,000 jobs in the same period.
Economists are awaiting the nonfarm payrolls report from the Bureau of Labor Statistics, which will be released on Friday. Some left-leaning politicians and big banks like Goldman Sachs and JPMorgan had predicted a high risk of recession, but have since lowered their odds.
In conclusion, the U.S. economy showed resilience with strong Q2 2023 growth, and a near-term recession is considered unlikely. However, slowing growth, sticky inflation, and tariff-related price pressures suggest a cautious outlook for 2025, with slowing but positive GDP growth and continued labor market strength expected. The consensus currently leans toward modest expansion rather than contraction.
- Despite the strong Q2 growth in 2023, the slowing growth and sticky inflation in 2025 may impact the business sector, calling for cautious financial planning.
- Concurrently, the robust economy has led to increased job creation, with the leisure and hospitality sector and private employers reporting significant growth, impacting the health and well-being of the workforce.
- As the Federal Reserve maintains a higher terminal interest rate to support the economy, financial institutions like Goldman Sachs and JPMorgan will need to adjust their investment strategies accordingly in the education and health services sector.
