Is a Recession Coming in 2023?
In financial circles, at office holiday parties and even around dinner tables across the U.S., talk is turning to fears of a recession in 2023. Some people may be looking at paying down debt, cutting corners during holiday shopping or bolstering their savings to prepare.
In fact, according to the CNBC All-America Economic Survey, 41% of American shoppers polled said they plan to spend less this year than they did in 2021. That marks the highest level of consumer caution in nine years, but is it warranted?
Based on commentary from the Fannie Mae Economic and Strategic Research (ESR) Group, the first quarter of 2023 could, indeed, experience a “modest recession.”
What Is a Recession?
By the Department of Labor definition from 1974, a recession is marked by a 1.5% decline in gross national product, combined with an unemployment rate of 6% or more, for at least six months.
According to the latest jobs report, the unemployment rate for November 2022 was 3.7%, with roughly 6 million Americans unemployed.
But the U.S. GDP is now experiencing growth of 0% for 2022, and is forecasted to experience a 0.6% contraction in the first quarter of 2023, according to the Fannie Mae report. While these numbers do not point to a recession based on the BLS definition, it does point to a recession by the more general definition from the Oxford Dictionary, which calls a recession “a fall in GDP in two successive quarters.”
However, a number of factors — including rising interest rates and falling home prices — could change the economic landscape in 2023. Fannie Mae Senior vice president and chief economist Doug Duncan said in a press release, “The economy continues to slide toward a modest recession, which we anticipate will begin in the new year, with housing leading the slowdown.”
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Recessions also often include a downturn in the stock market and other investments. If you already have money safely set aside to cover job loss or another unexpected emergency, you might be in a good position to follow Warren Buffett’s famous advice: “Be fearful when others are greedy, and greedy when others are fearful.”
In other words, invest while the market is down and have an exit plan to sell at a profit during the upturn, which will inevitably come. In 2023, things may start looking up quicker than you might think.
Duncan also noted: “The good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession.”
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