Predicting a recession has always been a fools errand for decades, just as predicting the general direction of the stock market is not practical. Over the course of 2022, I watched financial analysts, professors from Harvard and government officials in the US and around the world predict a recession was nearly certain in 2022. As that year came to a close, the recession predictions started to shift to the first half of 2023.
Most of the predictions was for good reason though. For starters, there was a war raging in Europe and supply chains were a mess. With most of the worlds manufactured goods flowing from China and food staples (think wheat, soybeans and corn), from Ukraine and Russian being disrupted, it was only a matter of time before inflation got out of control.
As the US inflation steadily got out of hand from early 2022 to an annual rate of 9.1% in June, the drumbeat of a recession was at a fever pitch. This wasn’t surprising to me because previous bouts of high prices always lead to a recession.
The expected Central bank policy response to high prices is to increase interest rates to cool the economy, reduce inflation and get the real economy growing at a steady rate, avoiding a downturn. This is what is referred to as a soft landing. Over the course of 2022, interest rates went from around 0.25% to about 4.5% and mortgage rates went to a high of about 7%. Leading to a housing downturn in the US.
All of the factors discussed so far would have easily led to a recession but the US economy had a formidable cushion with consumers flush with cash and the job market still red hot with two jobs available for every American who wants to work for all of 2022.
2023 is here and the economy is still humming along, consumer spending is still strong and supply chains are normalizing. Inflation has decreased every month since July 2022 and durable goods prices like vehicles are coming down fast. Tesla recently announced price cuts and other automakers like Ford are reducing prices as well. I believe more manufacturers would follow as we go through 2023.
I know you would want to point to the the housing market that is still in a funk and technology companies laying off workers left and right. Inspite of those reasons, the underlying US economy is still strong, the Bureau of Labour statistics reported that there are still over 10.2 million job opening on Jan 4th, 2023.
Another positive for the global economy is China. The Asian giant has awaken from its authoritarian Zero Covid policy slumber and it’s economy is predicted to grow at a robust 5% this year. If the US and China keep their economy growing for 2023, I believe a recession won’t materialize.
So Keep Calm, reduce liabilities or debt, work hard at your jobs, live life to the fullest and take care of yourselves! These times of uncertainties shall pass and stay tuned for my next article on how I am planning for the worst case scenario if a recession materializes in 2023.