(CNN) — As Wall Street worries about a possible recessionWhite House officials project confidence in the economy’s ability to weather the storm in 2023.
“We’re cautiously optimistic because we’re starting to see some concrete, measurable signs of progress,” Aviva Aron-Dine, deputy director of the White House National Economic Council, told CNN in a Zoom interview.
The Biden administration economist pointed to a number of indicators that show inflation has cooled, real wages have improved and the job market has defied doomsday predictions.
The White House is confident of a soft landing, in which the Federal Reserve tames inflation without sinking the economy.
“We remain optimistic about a transition to steady and stable growth with lower inflation, without giving up labor market gains and without recession,” Aron-Dine said.
So far so good, at least from a management perspective.
For now, indicators suggest the economy has held up and consumers are more optimistic as inflation eases. The latest consumer confidence index This month’s Conference Board report, for example, shows a significant increase from November. And after hitting record highs in June, gasoline prices have fallen to 17-month lows, providing a major boost to consumers.
Also, some broader trends appear to favor management, such as hiring, which has slowed but not slumped.
What will happen to employment?
There is “absolutely no indication” that job growth will fall below a “sustained” rate of about 150,000 jobs a month, Aron-Dine said.
Last month, the US economy created 263,000 jobs. This figure is a sharp drop from the 647,000 in the same period last year, but it is still a very healthy pace.
Despite a series of mass layoffs in the technology and media sectors, Aron-Dine added that “there are no signs of a big rise in unemployment.”
In fact, initial claims for unemployment benefits remain very low. The Labor Department reported Thursday that first claims for jobless benefits rose slightly in the past week and remain near two-month lows. However, some economists—including those at the Federal Reserve—warn that this trend could be about to change, due in large part to continued pressure from higher borrowing costs.
After raising interest rates for the seventh week in a row, the Federal Reserve last week forecast that the unemployment rate will drop from 3.7% now, a historically low level, to 4.6% by the end of next year. This implies an increase of approximately 1.6 million unemployed.
Different views on the possible recession
Some, but not all, business leaders and big banks expect the US economy to enter a recession next year. For example, PNC now forecasts a “mild recession” similar to those of 1990-1991 and 2001.
“The risk of recession is elevated right now, certainly higher than it was six months or a year ago,” Gus Faucher, PNC chief economist, told CNN. “We have to be prepared for a recession sometime in the spring or summer of 2023.”
Other economists, such as Mark Zandi of Moody’s Analytics, are increasingly confident that a recession can be avoided.
Although Fed officials say a soft landing is still possible, some of the Fed’s own metrics are flashing red.
A New York Fed model that uses changes in the bond market to predict recession risks concludes that there is a 38% chance of a recession in the next 12 months. That narrowly exceeds the 2019 peak and is the highest level since just before the Great Recession.
There are signs that cracks are forming in consumer spending — the main engine of the US economy — as high inflation has forced some Americans to dip into savings and turn to credit cards. Retail sales, for example, registered the biggest decline in almost a year in November.
Asked about the surprising drop in retail sales, Aron-Dine pointed out that this indicator can experience great volatility.
“If you look at the data over a longer period of time, you don’t see any indications that make us think this is a major concern,” he said.
In the effort to steer clear of high inflation, Aron-Dine said, the White House continues to assess ongoing risks, calling the war in Ukraine one of the “most significant” it monitors.
“I think throughout the year we’ve seen that there are signs of real strength and opportunities for a successful transition, and that there are significant risks. And so our job, our strategy, has been about trying to build on strengths and mitigate risks.” he said, adding later: “I think we have reason for optimism, reason to believe that the US economy is in a good position, but there are global challenges and the first on that list is the possible consequences of the war in Ukraine for food. and energy, as we’ve seen this year and in general.”
Another hurdle Biden’s economic team will face in the new year will be reaching consensus among a divided Congress.
Biden’s first two years in office were marked by the passage of major bills aimed at bolstering the country’s recovery from the coronavirus pandemic, rebuilding national infrastructure, overhauling major social protection programs, improving supply chains and make climate investments.
However, some of the main provisions promoted by the Biden White House, such as the reactivation of the child tax bonus, have failed to advance in Congress. The previous expansion of the child tax credit lifted 2.1 million children out of poverty in 2021, according to the Census Bureau.
An attempt to enact the credit into law as part of the $1.7 trillion public spending bill failed this month. And with the Republican takeover of the House of Representatives next year, its passage is even less likely.
“It’s disappointing that the Republicans have blocked the inclusion of enhancements to the Child Tax Credit” at this stage, Aron-Dine said, adding: “I’m not going to get ahead of the agenda by setting out our strategy for next year, but of course , this will continue to be a priority for us.”
The Inflation Reduction Act
Along with broader efforts to curb inflation and avoid a recession, implementation of the Cut Inflation Act will also be a top priority for Biden’s economic officials next year.
A number of provisions of the inflation law are scheduled to take effect in January, including tax credits for home energy efficiency and a $35 cap on the cost of insulin for seniors with Medicare.
And CNN previously reported that, along with rolling out a strategy meant to highlight existing gains, as Biden heads into the new year, the White House is trying to highlight ways in which the Tax Reduction Act Inflation will reduce everyday costs.
And as the administration prepares to frame Biden’s agenda ahead of next year’s State of the Union address, National Economic Council Director Brian Deese told The Wall Street Journal this week that officials are considering the possibility of advancing policies aimed at putting Americans back to work, including benefits for child care and elderly care.
It is not clear if the White House is considering using its executive authority or sending a proposal to Congress to advance the initiative. Aron-Dine declined to provide specific details.