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A12 BUSINESS
Friday 13 January 2023

Can U.S. avoid a recession? As inflation

eases, optimism rises

By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — For
months, the outlook for the
U.S. economy has been
a mostly bleak one: Infla-
tion hitting a four-decade
high, consumer spending
weakening, interest rates
surging. Most economists
penciled in a recession for
2023.
An economic downturn is
still possible. Yet in recent
weeks, with inflation show-
ing widespread signs of A hiring sign is displayed at a job agency in Mount Prospect,
easing, a more cheerful Ill., Thursday, Jan. 3, 2023.
view has gained traction: Associated Press
Maybe a recession isn’t in-
evitable after all. as vice chair of the Fed. “It than they were a year
One reason for the tenta- may still not be more than ago. Clothing prices have
tive optimism is evidence 50-50. But 50-50 is looking declined in two of the past
that an acceleration in U.S. better than it was a few three months. Furniture
wages, which has benefit- months ago.” prices have dropped for
ed workers but also height- The most positive sign, three straight months.
ened inflation, is slowing. Blinder said, is the ongoing In the meantime, con-
Federal Reserve Chair Je- slowdown in inflation. It has sumers are spending less,
rome Powell has frequently dropped from a peak of forcing many retailers to
pointed to fast-rising work- 9.1% in June to a still-high cut prices to pare their in-
er pay to explain why the 7.1% in November. When ventories of goods. Online
Fed has had to raise inter- the government issues the prices have fallen for four
est rates so aggressively. December inflation report straight months from year-
Fed rate hikes, if carried Thursday, economists pre- ago levels, according to
out far enough and long dict it will show another Adobe Analytics, particu-
enough, can weaken the step down, to 6.5%. On larly for computers, toys
economy so much as to a monthly basis, prices and sporting goods.
trigger a recession. are expected to have re- “The sooner the inflation
On Thursday, the govern- mained flat from Novem- rate falls,” Blinder said, “the
ment is expected to issue ber to December another sooner the Fed will ease up,
another mild report on in- encouraging sign. and therefore the less the
flation, which would boost The inflation slowdown chance of a recession.” All
hopes that the Fed might stems from a range of fac- that said, there are plenty
decide to pause its rate tors, including cheaper of threats to a soft land-
hikes sooner than has been gas, the unraveling of sup- ing. As China’s economy
expected. In the mean- ply chain snarls and small- reopens from its COVID-19
time, the job market the er profit margins among lockdowns, it may start to
most important pillar of the many retailers. absorb more of the world’s
economy remains remark- The national average price oil supply. That could send
ably sturdy. These trends of a gallon of gas was U.S. gas prices up again.
are raising expectations $3.27 on Wednesday, far And while layoffs remain
that the Fed might manage below the $5 peak in mid- historically low outside of
to engineer an often-elu- June. Average used car technology companies,
sive “soft landing,” where- prices, which skyrocketed that trend could reverse if
by the economy slows but 37% in 2021, have dropped businesses become anx-
doesn’t go into reverse for five straight months. ious again about the eco-
and unemployment rate They’re now 3% cheaper nomic outlook. q
rises slightly but stays low.
It would still mean painful
times for many people. But
it wouldn’t inflict the wide-
spread unemployment
that typically results from a
recession.
“All the signs are pointing
to a higher, not a lower,
probability of a soft land-
ing,” said Alan Blinder, a
Princeton University econ-
omist who formerly served