Economists See Lower Recession Risk and Stronger Job Growth: WSJ Survey

Forecasters nudge up growth and trim inflation estimates as tariffs prove lower and less costly than expected in April.

The tariff-driven inflation spike that economists widely predicted hasn’t materialized.

The economic fallout from President Trump’s policies may prove less dire than feared.

The tariff-driven inflation spike that economists widely predicted hasn’t materialized.

Economists expect stronger growth and job creation, lower risk of recession and cooler inflation than they did three months ago, according to The Wall Street Journal’s quarterly survey of professional forecasters.

The reason: The Journal’s previous survey was conducted at the height of the president’s threats to impose eye-watering tariffs on America’s biggest trading partners. He paused some of the tariffs shortly thereafter.

Whether the improved mood lasts remains to be seen. This past week, Trump told numerous trading partners—including Brazil, Canada, Mexico and the European Union—that they would face much higher tariffs starting Aug. 1.

Although economists’ outlook improved slightly from the last survey, they still are relatively downbeat—most likely because of the persistence of trade uncertainty and muted growth to date.

On average, they expect gross domestic product adjusted for inflation to grow 1% in the fourth quarter from a year earlier. That is up from an April forecast of 0.8%, but just half of what they expected in January. They see growth rebounding to 1.9% in 2026, little changed from prior surveys.

On average they put the probability of recession in the next 12 months at 33%, down from 45% in April, but higher than January’s 22%.

“Despite numerous headwinds, the U.S. economy is proving stubbornly resilient,” said Chad Moutray, chief economist at the National Restaurant Association. “Consumers are continuing to spend, but the mood has clearly shifted from bold to careful.”

The survey gathered responses from 69 economists at outfits ranging from Wall Street banks to universities to small consulting firms from July 3 to July 8. Not every forecaster answered every question.

The improved outlook follows three months of generally encouraging economic data. Job growth averaged 150,000 in the past three months, better than projected in April, and the unemployment rate dipped to 4.1% in June from 4.2% in May, staying within its range of the past year.

Weekly claims for initial unemployment benefits, an almost-real-time indicator of layoffs, show no cause for concern. Business and consumer sentiment, which were in free fall earlier this year, appear to have leveled off. The S&P 500 notched a record high this month.

Perhaps most important, the tariff-driven inflation spike that economists widely predicted hasn’t materialized. Core consumer prices, which exclude volatile food and energy components, were up 2.8% in May from a year earlier, the lowest in four years, though still higher than is consistent with the Fed’s 2% target.

To be sure, Trump’s policies are affecting behavior. Goods imports surged 26% in the first quarter from a year earlier as consumers and firms rushed to get ahead of tariffs. After the duties took effect in April, imports plunged.

Diane Swonk, chief economist at KPMG US, cautioned that official economic indicators, which combine actual data from surveys with estimates, often struggle to capture inflection points.

“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,” Swonk said. “It makes it even harder to read the tea leaves.”

Trump’s policies—which besides tariffs include a clampdown on illegal immigration, stepped-up deportations and a just-signed megabill cutting taxes and some spending—may also take time to filter into the real economy.

Some Federal Reserve officials suspect companies won’t raise prices until they have run down inventories amassed before tariffs took effect, according to minutes of their June meeting. The average economist in the Journal’s survey expects Trump’s tariff plans to add 0.7 percentage point to inflation as measured by the consumer-price index in the fourth quarter of 2025.

Nonetheless, their average forecast of 3% inflation in December is down from an April forecast of 3.6%—though higher than the 2.7% predicted in January.

“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,” said Bill Adams, chief economist at Comerica Bank.

The ultimate level of tariffs, and thus the economic impact, remains a wild card. JPMorgan economists estimate the average U.S. tariff on May 12, after Trump rolled back levies on China, was 12.2%. Tariffs since announced on steel, aluminum, copper, Vietnam and other countries have boosted that to 14.6%, and other tariffs floated by Trump would add another 6.1 percentage points, they estimate.

The labor market’s outlook has also recovered since April, though not to January’s level. Economists expect employers to add an average of 74,070 to payrolls per month over the coming year, up from 54,619 in April. They forecast the unemployment rate rising to 4.5% in December, down from an April projection of 4.7%.

That may give the Fed a little more time before cutting its interest-rate target from its current 4.25%-to-4.5% range. On average, economists see the midpoint of that range ending the year at 3.94%, up from 3.79% in April, implying one to two quarter-point cuts this year.

Economists see Trump’s megabill adding 0.2 percentage point to economic growth in 2025 and 0.3 in 2026. But they also see stepped-up deportations and decreased immigration fully offsetting that, shaving 0.2 and 0.3 percentage point from annual GDP growth in 2025 and 2026, respectively.

“Immigration helped power growth significantly over the past two years,” said Joel Naroff, who runs his own consulting firm. “That will wash out going forward.”

Write to Paul Kiernan at paul.kiernan@wsj.com and Anthony DeBarros at anthony.debarros@wsj.com