US economic activity is expected to downshift in the third quarter, but not enough to trigger a recession warning, based on the median estimate for a set of nowcasts compiled by CapitalSpectator.com.

Growth is projected to increase at an annualized 2.1% pace for the July-through-September period, according to the median nowcast. The estimate reflects a substantially softer rise relative to the strong 3.3% increase reported for Q2. The Bureau of Economic Analysis is scheduled to publish its initial Q3 GDP report on October 30.
 

Today’s median Q3 nowcast remains relatively stable vs. recent estimates, ticking down slightly from the 2.2% nowcast published on Sep. 4.

Although the economy is expected to downshift in Q3, recession risk is still projected to remain low in the current quarter, but headwinds are strengthening for Q4, economists predict.

Quoting several economists, Morningstar.com reports that “A rapidly cooling job market is raising alarm bells for market watchers.”

“Recession risks are growing,” says Pimco economist Tiffany Wilding, who, like many others, does not see a major slowdown as her base case. She adds that right now, however, “the economy is more vulnerable to any kind of negative shock.”

“The tariffs are certainly hurting, but they’re not quite bad enough to get us to that recession,” says Samuel Tombs, chief US economist at Pantheon Macroeconomics.

“The labor market is more vulnerable today than at any point in this expansion,” says Ryan Sweet, chief US economist at Oxford Economics. His base case is that the US avoids a recession, but he characterizes the economy overall as susceptible to a slowdown, thanks in large part to pressure from the labor market.

UBS economists, by contrast, have a darker view for the near-term outlook and estimate a 93% chance that the US will slip into a recession at some point this year. Moody’s chief economist Mark Zandi said the alarm bells are ringing and the odds of a downturn in the next 12 months are “uncomfortably high.”

Perhaps, but whenever the next NBER-defined recession begins, the odds remain relatively high that Q3 will not mark the first quarter of contraction.

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