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Wall Street economists are increasingly less worried about a 2023 recession

The much-discussed recession of 2023 still isn't here, and economists are becoming less confident it will come at all.

This week, Wells Fargo's team of economists became the latest group to dial back its recession outlook. The firm now sees a recession hitting at the beginning of 2024 as recent economic data reveals an economy "not yet on the brink of recession."

"While we still expect the delayed effects of monetary tightening and tighter credit availability to dampen economic growth, the economy has proven to be more resilient than we anticipated," Wells Fargo's team of economists wrote in a note to clients on Wednesday. "As a result, we have pushed back our expectations for the start of economic contraction to Q1-2024."

Wells Fargo isn't the only one becoming more optimistic about the outlook for economic expansion in 2023. Goldman Sachs cut its odds of a recession this year from 35% down to 25% earlier this week. Capital Economics teased in a Wednesday note it plans to push back its third-quarter recession call. Bank of America chief Economist Michael Gapen explained to Yahoo Finance Live there's an increasing path to a "soft landing," or a mild recession. There's even a case for no recession per what Goldman Sachs COO John Waldron told Bloomberg earlier this week.

The positive outlooks follow economic data that economists often refer to as "resilient." The US labor market added 339,000 jobs in May, the largest monthly increase since January. April job openings surprised to the upside too. All while consumers continue to spend despite sticky inflation.

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As of Thursday, the Atlanta Fed is projecting the US economy will grow 2.2% in the second quarter, which would mark the fourth straight quarter of gross domestic product expansion. Typically, two consecutive quarters of GDP declines would be considered an official recession mark.

"We now suspect that the economy is unlikely to fall into recession as soon as the third quarter, as we had previously anticipated, and that it will take longer for a meaningful downturn in the labor market to materialize," Capital Economics wrote on Wednesday.

The recession debate comes as Wall Street wonders how the economy will react to the Federal Reserve's most aggressive interest rate hike campaign in 40 years. The economy could come down from the interest rate hikes with a 'hard landing', where the Fed induces a deep recession and unemployment jumps significantly, or a soft landing, where the US economy only slows down slightly.

Gapen notes that the "mild recession" he and BofA are projecting is in line with the description of a soft landing. The odds of this have increased overall over the last several weeks as credit fallout from the Silicon Valley Bank collapse seems to have moderated and the debt ceiling debate in Washington has been resolved.

"Unless bank stress gets worse and a credit crunch is revealed, it's harder to see where that hard landing risk is coming from at present," Gapen told Yahoo Finance Live.

A general view of Pacific Western Bank in Huntington Beach, California, U.S., March 22, 2023. Pacwest has been one of several regional banks under stress since the collapse of Silicon Valley Bank.       REUTERS/Mike Blake
A general view of Pacific Western Bank in Huntington Beach, California, U.S., March 22, 2023. Pacwest has been one of several regional banks under stress since the collapse of Silicon Valley Bank. REUTERS/Mike Blake (Mike Blake / reuters)

There are still bearish calls on the economy out there. Morgan Stanley sees corporate earnings dropping 16% by the end of the year while analysis from Bespoke Investment Group showed investors haven't bet this heavily on a drop in the S&P 500 since 2007.

But the stock market is considered a forward-looking indicator, and the Nasdaq is rallying over 26% this year while the S&P 500 is nearly in a bull market. So if a hard-hitting recession is still coming in 2023, markets aren't pricing it in.

Josh is a reporter for Yahoo Finance.

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