The U.S. Seems to Be Dodging a Recession. What Could Go Wrong?

With inflation falling, unemployment low and the Federal Reserve signaling it could soon begin cutting interest rates, forecasters are becoming increasingly optimistic that the U.S. economy could avoid a recession.

Wells Fargo last week became the latest big bank to predict that the economy will achieve a soft landing, gently slowing rather than screeching to a halt. The bank’s economists had been forecasting a recession since the middle of 2022.

Yet if forecasters were wrong when they predicted a recession last year, they could be wrong again, this time in the opposite direction. The risks that economists highlighted in 2023 haven’t gone away, and recent economic data, though still mostly positive, has suggested some cracks beneath the surface.

Indeed, on the same day that Wells Fargo reversed its recession call, its economists also published a report pointing to signs of weakness in the labor market. Hiring has slowed, they noted, and just a handful of industries account for much of the recent job gains. Layoffs remain low, but workers who do lose their jobs are having a harder time finding a new one.

“We’re not out of the woods yet,” said Sarah House, an author of the report. “We still think that recession risk is still elevated.”