Contrasting Views from Economists and Business Owners
Dana Peterson, the chief economist at the Conference Board, believes that the sharp decline of the U.S. business group's Leading Economic Index indicates that a recession will soon take hold in the United States. However, some business owners, like Matt Malone, CEO of Groundworks, see a different picture. Despite predictions of a recession and a developing inflation surge, Groundworks is still booking strong sales and seeing consumers ready to spend.
- The U.S. and global economies remain a mystery, with major central banks raising interest rates at a pace that was thought to be crushing, but economy-wide, many recent surprises have been to the upside
- Still, for now, Fed officials are more concerned about trends like labor hoarding as businesses continue to hire and retain hard-to-find workers
Consumer Spending Will Be Key
Globally, there are similar dynamics at play as seemingly inevitable recessions in the euro zone and the United Kingdom have given way to modest ongoing growth. Unusually warm weather and lower energy prices have helped, as have strong consumer spending, and the reopening of China's economy from strict COVID lockdowns. Despite the potential for a recession in the U.S. or in Europe, it could be short and shallow with companies retaining hard-to-find workers and only modest cutbacks in household and business spending.
- Businesses are continuing to hire, or are not looking to shrink their labor force, but ultimately, the key to continued economic growth is the consumer
- It remains to be seen whether consumers are willing and able to keep spending, and how much they are willing to spend
A Recession Later In The Year
According to a recent survey conducted by the National Association for Business Economics (NABE), a majority of business economists in the US believe that a recession will occur later in the year than they had originally predicted. 58% of the 48 economists who participated in the survey believe that a recession will happen sometime in 2023, which is the same percentage as reported in December.
- However, the proportion of economists who think a recession will start by the end of March has decreased by half
- Approximately one-third of the economists surveyed now predict that the recession will begin between April and June, while one-fifth believe it will occur between July and September
- The economists’ delay in forecasting a downturn follows a series of reports indicating that the US economy remains strong despite steadily increasing interest rates by the Federal Reserve to control inflation and slow growth
Jobs Remain Strong
Reports from January indicate that employers in the US added over 500,000 jobs, and the unemployment rate fell to 3.4%, the lowest level in half a century. Sales in retail stores and restaurants also saw a monthly increase of 3%, which is the largest gain in nearly two years. These figures suggest that consumers, who drive much of the economy’s growth, still have the financial means to spend.
- However, concerns have been raised after several government releases revealed that inflation increased again in January after several months of weakening
- This development has led to fears that the Federal Reserve may raise its benchmark rate even higher than previously expected
- This would cause borrowing costs for mortgages, auto loans, credit cards, and business loans to rise, which could weaken the economy and possibly trigger a recession
Economic research released last Friday highlights that the Federal Reserve has never been successful in reducing inflation from the high levels recently observed without causing a recession.
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