U.S Economic Outlook: Sustaining Growth Amidst Headwinds from Domestic and Abroad
For anyone who has been paying attention to the news lately, the word “Recession” has been frequenting the media. However, according to Anna Wong, Chief US Economist for Bloomberg Economics, the data coming in from the research shows that people are still spending, and it is unlikely that there will be a recession until late 2023.
To understand why, Dr. Wong goes into the details of the fundamentals of economics. One of the most important reasons why there likely won’t be a recession this year or going into the first half of 2023 is because the balance sheet of US households shows a large excess of savings in people’s bank accounts of 2.6 trillion dollars, estimated by Bloomberg Economics. A lot of these savings came from the rounds of stimulus checks that were distributed during the pandemic, which allowed people to continue to spend. For the Americans in the top half of income in the US, there is still a lot of cash and savings, making the immediate risk of recession low. Another reason why the economy is looking more positive is that corporate profits remain at a historically high level, and unless they plunge rapidly, the risk of recession remains low. Therefore, Bloomberg estimates there is at least a year of growth left before a recession.
One reason for the chatter around the possibility of an impending recession is the stock market, which has plunged 22 percent since the beginning of the year. However, for most American families, their wealth is concentrated in housing and cars, and most US households do not own any stock. Bloomberg suggests that even if the stock market continues to plummet, only the top 10 percent of Americans would see their net worth decline. However, with interest rates being raised rapidly by the Fed, there has been a decline in housing demand and in increase in supply. Bloomberg predicts that housing prices will continue to rise this year, but there are risks that it could decline next year and affect people’s spending decisions.
Inflation has been at a high, due to elevated gas and rent prices, which is expected to continue to rise well into 2023. The forecast is that CPI inflation could reach 9% by the end of the summer, and for the average American it will have far reaching consequences on their purchasing power. However, Bloomberg finds that the gains in nominal wages due to the historically tight labor market could offset a lot of the effects of inflation. The unemployment rate is currently at 3.6 percent, almost the lowest since pre-pandemic years. Because of the shortage of labor, nominal wages have been increasing at about 6 percent yearly, but because inflation is growing at a faster rate, real wages are declining. The good news is that people are rejoining the workforce slowly and starting to close the demand/supply gap in the labor market.
On another note, Dr. Wong goes into the challenges of supply chain resiliency. One of the reasons the inflation started was because during the pandemic, people were purchasing a lot of goods that were being supplied from abroad, particularly from China. Because every country has a different COVID-19 policy, the global production process was disrupted. It is important for the US to ensure supply chain resiliency by moving production nearshore or onshore. She concludes by saying that while the research shows there is not an immediate risk of recession, there is a high risk that the Fed will continue to raise interest rates at the current rate or even faster, and it is almost inevitable that a recession will start late 2023.
What do you think will happen in the economy over the next year? Share your thoughts in the comments below.