Recession Watch: Experts Predict How Bad It Could Be in 2023
Despite a year defined by epic inflation, a bear stock market and soaring interest rates, America’s businesses and consumers have shown impressive resilience. Pundits have been ringing the recession alarm bell since the spring of 2022, but as the country starts to thaw once again a year later, the economy remains unbowed.
But for how long?
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Moving into spring, there’s a renewed consensus that the Fed won’t be able to pull off a soft landing with its anti-inflationary rate hikes. So is the long-awaited recession that everyone has been dreading almost here for real this time? And if so, how bad will it be?
Here’s what you need to know.
Regular People and Experts Alike Are Bracing for Hard Times
No one can predict the future, but if general sentiment is any indicator, Americans should start saving their pennies for the rainy day that’s just around the corner.
“Americans aren’t confident the economy will improve soon, with 78% saying they believe the U.S. will enter a recession in the next 12 months,” said Laura Adams, MBA, a personal finance expert with Finder.com.
Adams cited data from her own organization’s quarterly Consumer Confidence Index survey — but it’s not just the general public that expects a downturn in 2023. Finder’s panel of economists provides expert commentary at Fed meetings regarding potential rate moves and how they may affect the economy, and they express the same anxieties.
“Our panel has a somewhat pessimistic outlook for various economic indicators over the next six months,” said Adams, who cited the following statistics:
- 83% expect wage growth and employment to decrease
- 83% say household debt will increase
- 67% expect the cost of living to keep rising
Those are troubling signs indeed.
A Strong Job Market Will Likely Prevent an All-Out Disaster
James Hill, a global energy expert with 45 years of working in global markets and the CEO of MCF Energy, is among the majority of analysts and laypeople alike who predict a recession. However, he expresses optimism regarding its probable severity.
“We can expect to see a more mild recession than previously predicted,” said Hill. “This moderate upgrade in the recessionary outlook is shared across the board by economists and analysts.”
He identifies high energy prices and waning gas supplies as potential trouble spots, but he thinks the so-far unstoppable job market will mitigate the damage.
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“January demonstrated remarkable activity within the labor market, with over 500,000 jobs gained, indicating a more resilient and vibrant start to the year,” said Hill. “Based on current signs in the economy, we are anticipating a mild recessionary period but with a stronger and more active job market than in previous recessions. It is forecasted to be short-lived based on the current analysis.”
For Many Small Businesses, Even a Mild Recession Will Spell the End
MCF Energy is a publicly traded company that’s equipped to endure even a significant downturn, but many Main Street mom-and-pop shops aren’t so fortunate.
“Small businesses are often hit particularly hard during a recession,” said Jeff Mains, a five-time entrepreneur and CEO of Champion Leadership Group LLC. “They may not have the same financial resources as larger companies to weather the storm and may be more vulnerable to changes in consumer behavior or supply chain disruptions. Small businesses may struggle to secure financing during a recession, as banks may be more cautious about lending.”
Commercial Real Estate Is Primed for a Beating
Much has been written about the housing market, its impact on inflation and the effects of the Fed’s rate hikes on homebuyers and sellers. If the economy sours, though, the real drama won’t play out in the residential property market.
“If a recession were to occur, it could potentially have a significant impact on the commercial real estate industry,” said Kyle Baptist, senior vice president of national commercial real estate brokerage SkyView Advisors.
Baptist’s firm focuses on the recession-resistant self-storage segment, but he’s betting against two adjacent segments that have already been battered by the post-pandemic shift toward remote work and e-commerce.
“In particular, we could see a decline in demand for office and retail space as companies look to downsize and consumers cut back on spending,” said Baptist. “However, it’s important to note that the impact of a potential recession would vary depending on location and property type. In general, areas with high levels of job growth and economic diversity are likely to be more resilient in the face of a downturn.”
The Chip Industry Might Play a Reprising Role as Chief Antagonist
In the runup to the 2021 winter holiday season, “supply chain crisis” was the phrase du jour as inventories dwindled and prices rose from one industry to the next. One of the root causes of the global logjam was a semiconductor shortage that touched nearly every corner of the economy.
The auto industry was hit hardest — both new and used cars were scarce and expensive for months on end — but it was hardly alone. The chip shortage also battered the consumer electronics, lighting and power industries and the many sectors they serve.
It’s starting to look like déjà vu in 2023.
“The semiconductor industry is one of the industries most vulnerable to economic shocks due to its sensitivity to economic conditions and strong cyclicality,” said June Jia, quantitative researcher at GF Securities and founder of Canny Trading. “The semiconductor industry is currently in a high inventory cycle, which will exacerbate its impact during an economic downturn. Therefore, it is likely to be significantly affected during the forthcoming recession.”
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