US recession risk declines as inflation cools and jobs rise, says WSJ survey

The United States economy appears more resilient than expected, with economists trimming recession risks and projecting stronger job growth and cooler inflation, even as President Donald Trump’s aggressive tariff threats loom. That’s the key takeaway from The Wall Street Journal’s latest quarterly survey of professional forecasters, published this week. According to the Wall Street Journal, economists surveyed between July 3 and July 8 now see a 33 per cent chance of the US falling into recession within the next 12 months. That’s down sharply from 45 per cent in April, though still higher than the 22 per cent probability they had projected back in January.

The improved outlook, noted the Journal, comes despite persistent uncertainty around Trump’s sweeping trade moves. In recent days, the President threatened major new tariffs on key partners such as the European Union, Canada, Mexico, and Brazil starting August 1. Growth projections improve despite tariff threats The survey of 69 economists, ranging from Wall Street banks to universities and consultancies found that inflation-adjusted GDP is now expected to expand by 1 per cent in the fourth quarter compared to a year earlier. That’s up from April’s 0.8 per cent forecast, though still well below the expectations at the start of 2025.

Many economists credited the rebound in mood to Trump’s earlier decision to pause some of his harshest tariff threats this spring, which had caused widespread market anxiety. However, whether this optimism lasts remains an open question given the renewed tariff announcement. “Despite numerous headwinds, the US economy is proving stubbornly resilient,” Chad Moutray, chief economist at the National Restaurant Association, told The Wall Street Journal. “Consumers are continuing to spend, but the mood has clearly shifted from bold to careful.”

Jobs market beats expectations

Labour market data has also surprised on the upside. The survey noted that job growth averaged 150,000 per month over the past quarter, stronger than forecasters had expected back in April. The unemployment rate dipped to 4.1 per cent in June from 4.2 per cent in May, staying within its recent range.

Weekly unemployment claims have remained low, showing no clear signs of mass layoffs. Meanwhile, consumer and business sentiment, which plunged earlier this year, appears to have stabilised. The S&P 500 even notched a record high this month.

Inflation fears ease, but tariffs still a wild card

Perhaps most striking, the feared inflationary surge from tariffs hasn’t fully materialised yet. Core consumer prices (excluding volatile food and energy) rose 2.8 per cent year-on-year in May, the slowest in four years but still above the Federal Reserve’s 2 per cent target. Many economists think Trump’s tariffs will eventually push inflation higher, but their current forecasts have softened. On average, they now see consumer inflation at 3 per cent in December, down from April’s forecast of 3.6 per cent.

“While tariff hikes still seem likely to raise inflation in the second half of the year, their impact will be partially offset by less energy and shelter-cost inflation,” Bill Adams, chief economist at Comerica Bank, told The Wall Street Journal. But Trump’s tariff plans remain a major uncertainty. JPMorgan economists estimate that average US tariffs recently climbed from 12.2 per cent in May to 14.6 per cent after new levies on steel, aluminum, copper, and other products. Additional proposed tariffs could lift that by another 6.1 percentage points, according to the Journal.

Labour market outlook recovers

Despite these concerns, the jobs outlook has firmed. Economists now forecast employers will add an average of 74,070 jobs per month over the coming year, up from 54,619 in April. They expect the unemployment rate to rise modestly to 4.5 per cent by December, a slight improvement on April’s projection of 4.7 per cent.

This labour-market resilience may give the Federal Reserve some flexibility. Economists in the survey expect the Fed’s target range for rates to end the year with a midpoint of 3.94 per cent, implying one or two quarter-point cuts from the current 4.25–4.5 per cent band.

Trump’s other policies cloud the forecast

The Wall Street Journal also noted that Trump’s other policies, including mass deportations, a clampdown on illegal immigration and a newly signed tax-and-spending package are expected to have mixed economic impacts. Economists in the survey see Trump’s so-called “megabill” adding 0.2 percentage point to GDP growth in 2025 and 0.3 in 2026. But they also expect stepped-up deportations and lower immigration to fully offset those gains by subtracting 0.2 and 0.3 percentage point from growth in those years.

“Immigration helped power growth significantly over the past two years,” Joel Naroff, an independent economist, told The Wall Street Journal. “That will wash out going forward.” As Trump’s tariffs and immigration policies continue to evolve, economists cautioned that official data may struggle to capture the full impact in real time. “As good as our stats are, they just weren’t made for these kinds of very large moves in policy that cause a knee-jerk reaction,” Diane Swonk, chief economist at KPMG US, told the Journal. “It makes it even harder to read the tea leaves.”

Overall, while recession fears have eased, economists remain cautious about the second half of the year, highlighting the uncertain balance between trade tensions, inflation pressures and the resilience of American consumers and workers.