By Francis Kouakou
I am however, appeased by corporate America who still see the trainfrom another window. Goldman Sachs said: the US economy will avoidarecession and instead move towards a “soft landing” where inflationmoderates but growth continues.
I would like to set my arguments on the table. Why I think 2023 won’t see any recession? The main reason I believe is that the fundamentals of our economics are really good.
A Strong but tight Job Market
a.In the US, the job market is still strong. The Job Openings and Labor Turnover Survey(JOLTS) for the month of November shows that theUSeconomy needs 10.46 millions of worker way beyond the estimateof 10Millions. Some “amateurs” economist argue that the companies want toincrease hiring before the recession hit.
Non-farm payrolls increased by 223,000 for the month, above theDowJones estimate for 200,000
b.The unemployment rate fell to 3.5%, a decline of 0.2 percentagepoint and also better than the estimate. Can an economy with such a great unemployment rate, suddenly slip into a recession? Can people start loosing jobs, businesses will be closing, and GDP will sharply decrease?
c. In this kind of ecosystem when the labour market is tight, specialist were expecting a wage increase. It did not happen! Wage growthwas
below expectations, with average hourly earnings up 4.6%froma year ago, below the 5% estimate. In other words inflation is sticking down! This is actually a bad news for the advocates of the “Wage Growth inflation-led-recession”
Leisure and hospitality led job gains, followed by health care, construction and social assistance. Whaaaat? Leisure and hospitalityledto job gains? these are the same area who heavily suffered in the Pandemic area. This is a great news!!
Inflation in Food and Energy is pressuring down
As we all know, earnings are coming down as a reflection of downwardmovement of inflation. The price increase of food items fromNovember to December 2022 is down to 0.3 from 0.5 in November. The Energysector is also experiencing the same dynamic, where its price index is down to 4.5 December coming from 1.6% decrease in November. Thebiggest decrease is from fuel oil who saw a huge drop down of 16%from a November increase of 1.7. This could lead to celebrate. Indirectlyone can link these declines to the Fed’s rate increase. Arguably, monetary policy is working !
Price index of Services is up again
There is a sense of “ symphonie inachevée” when we look on the serviceside of the equation. A majority of the of the indexes in the servicesector were up in December. Shelter up to 0.8%, Energy at 1.5%, Transportation up to 0.2 from a decrease of 0.1 in November. TheFedcould be inspired by the recent price decrease and become too zealousfor further spikes, while having a vigilant eye on the service sector. Inanutshell, I believe, inflation won’t be a threat for the US economy in2023.
GDP growth in 2023: The Big unknown
We don’t have yet the 4
th quarter GDP of 2022, however on the 3rd one,
GDP did show a 3.1%. According to the Atlanta Fed forecast, The GDPNow model estimate for real GDP growth (seasonally adjustedannual rate) in the fourth quarter of 2022 was 4.1 percent on January10. The outlook for the U.S. economy looks weaker now than it did three
months ago, according to 38 forecasters surveyed by the Federal Reserve Bank of Philadelphia.
According to this Table, there is less chance of having a recessionin2023. The economy may stagnate but will remain out of the wood. The forecasters anticipate the economy will grow at an annual rateof 1.0 percent this quarter, down from the prediction of 1.2 percent inthelast survey. Over the next three quarters, the panelists also see slower output growth than they predicted three months ago. On an annual- average over annual-average basis, the forecasters expect real GDPtoincrease 0.7 percent in 2023 and 1.8 percent in 2024. According tomyEcon101, the spoiler in 2023 could come from:
1: Economic shock(like the one in 2020 due to the Covid-19) 2: Rapid inflation(like 1973, the Fed is gaurdian of the temple) 3: Excessive debt(in 2008 the predatory loans effect) 4: Asset bubbles( the dotcom bubble of the 1990s) 5: Rapid deflation(like in 2007-2008, Unthinkable!)