Recession? Persistent inflation? Market meltdown? Prolonged war in Ukraine? Stubbornly high interest rates? Real estate recession? Supply chain mayhem? What will the economy look like in the coming year? Although many have tried, that is a tough prediction to make.
The economy grew last year, at about 2% (Calhoun, January), which is close to what it has been since the previous recession though the growth was not in a straight line.
The FED will likely raise interest rates by 0.25% because it has been preparing us for that since the last increase. Where will the interest rates increase end? If I had to guess, probably at about 5~5.25% because this is what the FED has been signaling for the last few months.
Though the inflation numbers were down a bit on Friday, it’s a bit too early to declare victory. Inflation may well persist just as well as the war in Ukraine may well continue. We may have to get used to both. The economy will likely sputter along avoiding modern history’s most widely predicted recession. Is the risk of recession real? Yes, and my concern is that instead of being deep and quick like we had in 2020, it may be a prolonged and more selective recession affecting some areas of the economy before moving on to others. Those areas of the economy that are dependent on financing may be the hardest hit.
What about the real estate market? For over 10 years mortgage rates have been going down, making home ownership more affordable. How so? About a year ago, when mortgage rates were 3%, a mortgage of $750,000 was about $3,150. At 7%, that same mortgage is about $5,000. If rates stay high, prices will have to adjust, and this may take time.
What about the automotive industry? A healthy economy sells about 15 million cars annually (JP Morgan, 2023). 2022 sales were just under 14 million units, down about 8-9% from the previous year (CNBC, 2023). Demand is no doubt very high as new vehicles last year were in extremely short supply. But, the supply issues still need to be resolved and some consumers may remain turned off by dealers tacking on high premiums to sticker. Consumers may also feel concerned about the economy’s future and may face issues similar to home buyers when they realize interest rates on autos have gone up as well.
These are just two industries that may face pressure. There are many more we have not discussed, take restaurants, travel, and entertainment. I have more questions than answers, but I will continue investigate. I welcome your thoughts and questions and I enjoy our discussions.
I am here for you and am committed to adding value as the year unfolds.
Have a great month 🏳🌈