Economists Dial Back Outlook for U.S. Recession; Global Economy's Good Luck May Be Running Out

Economists Dial Back Outlook for U.S. Recession; Global Economy's Good Luck May Be Running Out By James Christie

Good day. Economists surveyed by The Wall Street Journal have lowered the probability of the U.S. economy falling into a recession. The probability is still high by historical comparison, but the economy has kept growing even as the Federal Reserve has raised interest rates, and nearly 60% of economists said their main reason for optimism about the economic outlook is their expectation that inflation will continue to slow. Some economists now see a pathway to achieve a "soft landing," or bringing inflation down without a recession. "At the beginning of this year it seemed more of a pipe dream," says Sean Snaith, director of the University of Central Florida's Institute for Economic Forecasting. Now, he adds, "it seems a recession keeps slipping, slipping, slipping into the future." This week central bankers and finance ministers from the Group of 20 major economies will gather in India amid signs the global economy's brief run of good luck may be ending. The question before them is whether they can keep dodging the worst consequences of the threats they face, from restrictive monetary policy to a slowdown in global trade.

Now on to today's news and analysis.

Top News Economists Are Cutting Back Their Recession Expectations

Easing inflation, a still-strong labor market and economic resilience led business and academic economists polled by The Wall Street Journal to lower the probability of a recession in the next 12 months to 54% from 61% in the prior two surveys.

Markets Appear Convinced the Fed Can Pull Off a Soft Landing What Markets Are Saying About the Fight Against Inflation About The Wall Street Journal Economic Forecasting Survey U.S. Economy Pay Raises Finally Beating Inflation After Two Years of Falling Behind

Americans' growing paychecks surpassed inflation for the first time in two years, providing some financial relief to workers, while complicating the Federal Reserve's efforts to tame price increases.

Big-Bank Earnings Show Signs of Soft Landing

The biggest U.S. banks presented a picture in their earnings of a resilient economy on Friday, with consumers and businesses continuing to spend and borrow even after a lightning-fast rise in interest rates.

Biden Administration to Wipe Out $39 Billion in Student Loans

The Education Department will forgive $39 billion in student loans for more than 804,000 borrowers , after fixes to ensure borrowers have an accurate count of payments qualifying toward forgiveness under income-driven plans.

Paying Student Loans Again Could Feel Like a 5% Pay Cut Key Developments Around the World A Buoyant Global Economy Is Starting to Sag

Manufacturing is weakening across the world. Europe slid into a mild recession earlier this year. China's rebound from Covid-19 lockdowns is sputtering. Many emerging markets continue to struggle with debt and high interest rates.

Global Migration Boom Keeps Housing Costs High

Europeans Are Becoming Poorer. 'Yes, We're All Worse Off.'

Europeans are facing a new economic reality. They are becoming poorer. Life on a continent long envied by outsiders for its art de vivre is rapidly losing its shine as Europeans see their purchasing power melt away .

China's Economy Barely Grows as Recovery Fades

China's economy barely grew in the second quarter from the first and youth unemployment hit a record high in June, providing evidence of a fading recovery that risks leaving the global economy underpowered.

China's Economy May Look Good on Paper, but It Feels Like Recession PBOC Adds Liquidity at Unchanged Policy Rates Iraq Tests U.S. Sanctions With Oil-for-Gas Deal With Iran

Iraq says it has found a way around U.S. sanctions on Iran: Paying Iran for gas with Iraqi oil. The agreement injects uncertainty into the Biden administration's attempts to cool tensions with Iran and contain its nuclear program.

Ukraine's NATO Push Hit a Bump. Joining the EU Will Also Be Tough.

Ukraine's bid for quick membership of the North Atlantic Treaty Organization faced a setback last week. Its path to membership of the European Union looks equally bumpy , despite encouragement from Brussels.

Russia-Crimea Bridge Disabled in Presumed Ukrainian Attack Russia Says It Is Pulling Out of Ukraine Grain Deal Russia Seizes Assets of Two Westerna Conglomerates Financial Regulation Roundup SEC's Strategy for Regulating Crypto Stumbles in Ripple Case

The Securities and Exchange Commission thought it had a way to regulate crypto-a 77-year-old Supreme Court test that created a catchall definition for obscure securities, but its strategy backfired .

Binance Lays Off Over 1,000 Employees

Binance, the giant crypto exchange, is cutting a big chunk of its workforce as it grapples with federal investigations and regulatory crackdowns in the U.S. and abroad that could radically diminish its business.

U.S. Virgin Islands Seeks $190 Million Over Epstein Suit

The U.S. Virgin Islands said it is seeking at least $190 million in damages from JPMorgan Chase in its lawsuit alleging that the bank facilitated Jeffrey Epstein's sex trafficking. The bank has denied the charges .

Forward Guidance Monday (all times ET)

8:30 a.m.: New York Fed's Empire State Manufacturing Survey

11 a.m.: New York Fed's SCE Credit Access Survey

Tuesday

8:15 a.m.: Canada housing starts for June

8:30 a.m.: U.S advance retail sales for June; Canada consumer-price index for June

9:15 a.m.: U.S. industrial production and capacity utilization for June

10 a.m.: U.S. manufacturing and trade Inventories and sales for May

Research BOE May Have to Raise Wage Growth Forecasts

The Bank of England may have to lift its wage growth forecasts considerably as recent data releases show persistently higher pay growth than the central bank's projections, Bank of America Merrill Lynch U.K. economist Robert Wood writes in a note. "The incoming wage data suggest wage growth likely will prove to be more persistent than the BOE previously expected," Wood writes, adding that wage-growth forecasts will likely have to be raised "markedly" in the BOE's next set of forecasts. This is likely to lift inflation "at the 1-year and perhaps 2-year horizons," though higher BOE interest rates are also expected to tame inflation, Wood writes.

-Miriam Mukuru

Commentary Americans Are Borrowing Again, Which Is Great News for Big Lenders

The pandemic saw consumers dial back on borrowing, but now fast-rising card borrowing is helping offset challenges from higher interest rates, such as rising deposit costs and losses on bank bond portfolios, Telis Demos writes.

Chinese Oil Demand Doesn't Make Sense

China's economy is having a rough summer, but the country is still churning out record amounts of diesel and importing vast amounts of crude oil, an imbalance unlikely to persist forever , Nathaniel Taplin writes.

Basis Points U.S. consumer sentiment climbed higher in mid-July, reaching its most favorable reading since September 2021. The preliminary reading of the University of Michigan's consumer sentiment index rose to 72.6 in early July from 64.4 in June. Economists polled by The Wall Street Journal expected a reading of 65.5. (Dow Jones Newswires) The cost of U.S. imported goods fell 0.2% in June, the Labor Department said Friday. Economists surveyed by The Wall Street Journal were expecting a 0.1% decline. On a year-on-year basis, import prices fell 6.1%, the largest drop since May 2020. (MarketWatch) Canadian factory shipments increased for a third straight month in May, driven by chemical products and motor vehicles. Sales rose 1.2% from the previous month at a seasonally adjusted 72.87 billion Canadian dollars, the equivalent of about $55.55 billion, Statistics Canada said Friday. (DJN) Singapore's non-oil domestic exports fell for a ninth straight month in June, with shipments of both electronics and non-electronics declining in most of its top 10 markets. (DJN) Indonesia's trade surplus widened in June amid a steep fall in imports. Southeast Asia's largest economy recorded a trade surplus of $3.45 billion, widening from $440 million in May, Indonesia's statistics agency said Monday. The country had trade surpluses with India, the U.S. and the Philippines. (DJN) The average house price in the U.K. fell 0.2%, or 905 pounds ($1,189) in July, the second fall in asking prices this year so far, according to new data from Rightmove released on Monday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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