Uncertainty in 2023: Business outlook panel says consumer spending key to avoiding recession

Local and state economic experts predict a slowdown in the coming year, although the severity will depend on many different factors.

Or, as Jennifer Rice, a senior lecturer at Indiana University’s Kelley School of Business, puts it, her outlook is optimistic, “but with a touch of pessimism.”

Experts from Indiana University and Columbus University presented their forecasts for 2023 — the year that, according to the Indiana University experts, “the most promising prospect in half a century” was held at The Commons on Monday. Most Uncertain” year.

“The overall conclusion is that some form of recession is likely in 2023,” Rice said. “It depends: Are we going to be optimistic or pessimistic?”

Since 1972, the Kelley College has issued annual business outlook forecasts to communities across the state, based on research from its Indiana Business Research Center.

This year’s Business Outlook tour includes visits to nine cities and begins in Bloomington on November 11. 10. At each stop, Kelley faculty and local panelists will provide economic forecasts for 2023 at the global, national, state, and local levels. Their insights include projected economic trends in the coming year, as well as the outlook for financial markets.

The Columbus Panel is sponsored by the Columbus Area Chamber of Commerce, Centra Credit Union, IUPUC’s Business Units, the Indiana Center for Business Studies and the Kelley School of Business. Proceeds from local events support scholarships for IUPUC business students.

Kelley officials said their projections for 2023 used two sets of assumptions, making two different projections for the year. One is optimistic; the other is “moderately pessimistic.” Sustained consumer spending and bringing more workers into the labor force will be key factors in improving economic outcomes.

“We think output growth in 2023 will be subdued at best, with a significant chance of negative growth for parts of the year,” Kyle Anderson, clinical assistant professor of business economics and faculty chair of the evening MBA program, said in an official statement Said. “Demand across the economy will fall. The key is the extent of the impact on consumer spending. If consumption continues to grow, it will buffer any decline. Otherwise, a recession will be inevitable.”

Spending on consumer goods in the third quarter of 2022 was 15.2% above pre-pandemic levels, while services grew only 3.4%, according to the IU report. If that divergence narrows, Kelly economists will worry about how the goods-producing industries will respond to the sharp decline in sales.

It could also have a more significant impact in Indiana, where the economy remains dependent on durable goods manufacturing, said Ryan Brewer, an associate professor of finance at IUPUC and co-author of the state forecast. The industry accounts for 16 percent of the state’s gross domestic product.

Rising interest rates and other factors could lead to lower demand for products, and Kelly School economists also expect Indiana’s unemployment rate to rise to between 4.1% and 5.5%.

“It appears that through 2023, Indiana, the manufacturing bellwether, will feel the strain of the Fed’s tightening cycle and eventually maintain a flat or relatively flat trajectory in terms of output, while facing the real possibility of layoffs,” Brewer said. Said in IU’s report. “If inflation remains high in the coming months, the Federal Reserve will likely continue to tighten policy, demand for durable goods will continue to slow, and unemployment in Indiana will likely become more severe.”

In a financial forecast, Brewer advised stock market players to consider “rebalancing” their future portfolios, possibly diversifying into other areas such as socially responsible investing or energy.

Brewer said local residents will be able to tell through holiday spending and consumerism whether we’re headed for an economic “hard landing,” and said individual households as a whole will determine whether the economy hits a soft landing or hits hard (sliding into recession) next year.

Other risks to the economic outlook in 2023 include the ongoing war in Ukraine, how central banks in developed countries handle their fiscal policies, and tightening financial conditions as interest rates rise.

In discussing the state’s outlook, Phil Powell, academic director of the Indiana Business Research Center, pointed to talent attraction as a major challenge for the Indiana and Columbus regions. However, he added that the Indiana General Assembly has an opportunity to address this issue by using some of the state’s surplus funds to invest in education, infrastructure, placemaking and public health, which would help make the region more competitive.

Jason Hester, President of the Greater Columbus Economic Development Corporation, presented the local outlook, including insights from himself, Brewer, and Steve Mohler from the IUPUC Business Unit.

“So first the benefits,” said Hester. “With about 8,000 local employees in our region and their global headquarters just one block from our downtown Columbus location, we first think Cummins is on track to deliver a solid sales year. We expect them to absorb any local or all input cost increases, and achieve margins comparable to the pre-inflation period. Importantly, our forecasts do not foresee a material change in their local headcount.”

Additionally, U.S. light vehicle sales are expected to rise, while the Lower Inflation Act includes incentives for companies to invest in clean energy. In addition, inflation may encourage individuals who leave the labor force to re-enter the labor force, which may reduce the burden on the labor market and encourage employers to create more jobs.

However, there is some potentially bad news to be accompanied by good news. Hester reiterated that lower consumer spending could lead to less demand for durable goods produced by local employers.

Although Columbus has a high labor force participation rate of 66% and low unemployment, Hurst said that if unemployment remains low and the labor force does not expand, local GDP growth could be “hamstrung” by a lack of available workers.

Hester said he and his co-authors mapped out three possible outcomes for Columbus, including a soft, moderate or hard landing for the local economy.

They see moderation as the most likely outcome. In this case, real GDP in Columbus would fall by -1% to -4%. Inflationary pressures will prompt as many as 1,500 people to re-enter the local job market, with employers filling vacancies but holding off on expansion. Unemployment will rise to 3%-4% as job seekers outpace job growth.

“High inflation and rising interest rates, ongoing supply chain challenges, tightening investment by local businesses and continued tight labor markets are the biggest challenges to local GDP growth,” Hester said. “However, as noted, these headwinds can be offset if consumer spending remains unchanged, especially if demand for light vehicles and other locally produced goods remains.”

Source link