Uncertain Economic Future: Is a Recession Coming in 2023?

Forecasters can’t seem to decide if we’re headed for a recession or if there is a recession coming in 2023. Or even what a recession is. In the meantime, families are facing uncertainty and inflation. And while economists try to sort out the technical parameters of a recession and predict what the near-term future holds, uncertainty seems to be rising. 

The COVID-19 pandemic is being treated as an afterthought, even as cases rise again, and there are new fears of a second pandemic. A land war in Europe generally assumed to be a relic of the past since at least the Yugoslav Wars, has been ongoing since February. It’s what economists sometimes euphemistically call “sub-optimal.” Because even if we’re not in a recession or headed for one, families might face trouble in the next few months. 

After all, what is a recession?

A recession has always been defined as two-quarters of negative growth in gross domestic product. Unless it’s defined as something else.

The US’s gross domestic product declined in the second quarter of 2022, which made it two consecutive quarters of decline, so arguably, we’re already in a recession. There are a few other things typically correlated with recessions, like drops in consumer confidence, but the global economy is not behaving according to the rules right now. Some sectors are still booming. And the S&P just had its best month in nearly two years. 

Recession indicators are unclear

Other macroeconomic indicators are also sending “mixed signals.” The job market is very strong. Even news sources that were worried about the job market a month ago still see the jobs market as fundamentally good. 

The dire predictions of June were wildly off the mark, wages are up, unemployment is low, and perhaps most tellingly: workers continue to leave jobs voluntarily. Workers don’t typically leave jobs if they are worried that the economy is about to tank.

The real estate market is slowing down

Meanwhile, home sales are weak. Older people are finding it difficult to sell properties. Because the Federal Reserve has raised interest rates, partially in response to the strength of the employment market,  home sales have declined sharply. There is still uncertainty around where home sales will go. Mortgage rates went back down a bit this month; they are still far above where they were a year ago, but the rate drop was sudden and dramatic. 

Inflation is still a risk

While the job market is generally strong and unemployment is low, inflation is a real concern for many families. Wages have been rising, but not fast enough to keep pace with inflation. 

The current inflation would be a problem were it general, and the evidence suggests that prices are rising across sectors. But inflation has been even more acute for key prices for working families, particularly food and fuel. The price of gasoline is up around 51%, while beef is up 24%.  

So even if economists don’t believe that conditions are technically recessionary, families seem to be tightening their belts, which means that dropping consumer confidence could push the United States into a recession in any event. Put another way, a weak home sales market, household inflation, and general uncertainty should lead to lower consumer spending. 

If people are worried about the world at large and basic goods cost more, you would think that they would spend less on retail products that they might be able to defer purchases on. Especially if a primary asset, like a home, is suddenly worth less than anticipated. But that doesn’t seem to be the case. Consumer spending is relatively high and rising. 

What’s next for the economy?

So, where does that leave the United States economy? The intellectually honest answer is, “who knows?” Consumers have no confidence in the future state of the economy, but they are spending as they do. For many in the United States, their primary asset is their house, which is not worth as much as it was a year ago. Prices for essential household goods are spiking, but retail spending remains high.

Meanwhile, the burden of inflation falls disproportionately on the poorest families. The simple fact is that the less cash you have, the more significant the marginal impact of inflation. Suppose you’re less likely to be able to hedge against inflation through home ownership, a diverse portfolio of investments, or take advantage of a robust job market. In that case, inflation is going to sting worse.  And when inflation is most acute on household necessities, or fixed costs, like gas needed for commutes, it will take an even bigger piece out of one’s budget. 

So while economists can discuss the vagaries of a definition of “recession” endlessly, the reality for many families is that we’re in one now, no matter how it’s defined. It remains to be seen if federal policymakers can deliver fast enough relief.