In survey, economists predict U.S. downturn during next 2 quarters

Forecasters put odds of recession over next year at 65%.

Forecasters now expect U.S. economic activity to contract over consecutive quarters in the middle of this year as steep interest-rate hikes from the Federal Reserve cascade more broadly across the economy.

Gross domestic product is seen falling at a 0.6% annualized rate in the second quarter and 0.3% in the third as consumer spending stagnates, business investment wanes and industrial production weakens, according to a Bloomberg survey of 73 economists conducted Jan. 13-18.

Forecasters put the probability of a recession over the next year at 65%.

“Recession worries are mounting in the U.S. as the Federal Reserve continues hiking interest rates,” said James Knightley, chief international economist at ING. “With more companies adopting a defensive posture, we expect to see hiring and investment plans cut back aggressively.”

Economists forecast the unemployment rate to climb from a five-decade low of 3.5% to nearly 5% by the end of the year as businesses reduce head count to control costs. Payrolls are expected to fall 45,000 a month on average in the second quarter and then by 104,000 in the July-to-September time frame.

That would represent a big shift for a labor market that has so far shown few signs of weakening. Employers added nearly a quarter million jobs in December, and applications for unemployment insurance remain historically low.

A resilient job market helps explain why some economists are betting the U.S. will be able to skirt a recession.

Indeed, wages are still expected to grow at a solid pace through much of this year, according to the Bloomberg survey.

While economists did revise down their expectations for the personal consumption expenditures price index — the Fed’s preferred gauge — and the consumer price index, inflation is expected to end the year well above the Fed’s 2% target.