Chance of mild recession rises, but “soft landing” still most likely outcome of inflation fight

As the U.S. economy struggles with high inflation, rising interest rates, and volatile stock markets, the potential for a mild recession is becoming more likely, although a “soft landing” is still the most likely path, according to transportation analysis firm ACT Research.

“We find ourselves in a turbulent environment, where still significant positive and increasingly negative economic forces are crashing into one another. With inflationary shocks emanating from Ukraine, the Fed’s task of engineering a soft landing has become increasingly challenging,” Kenny Vieth, president and senior analyst of Columbus, Indiana-based ACT, said in a release. “We believe downward pressures are building, and the probability of recession continues to grow. We think the probability of a mild recession is now nearly as likely as that of our base-case scenario.”

For the time being, those looming financial impacts are being offset by the U.S. economy’s strong forward momentum, charged by a “head of steam” that includes healthy consumer and business balance sheets, strong employment demand, and pent-up manufacturing sector activity. For example, the latest Logistics Manager’s Index report (LMI) showed that the logistics economy grew again in May, despite being cooled from its rapid pace of the past two years because of moderating transportation markets.

The U.S. central bank is now trying to preserve that momentum even as the Federal Reserve raises interest rates in its fight against inflation. So far, consumers have shrugged off rising prices and the higher cost of borrowing money, but factors like surging gas and diesel prices are pinching profit margins for many businesses, particularly those in the transportation sector.

“We believe the odds of a recession materializing, in some form or fashion, are essentially 50/50 relative to our slowing topline growth into a modest freight recession base case,” Vieth said.

ACT Research: Mild Recession Scenario Being Considered in Forecasting of NA CV Marketshttps://t.co/1zg3lzJCvP

— ACT Research (@actresearch) June 13, 2022