The worries of a recession that have been weighing on some advertisers’ minds may start to subside as some economists are now saying a downturn is unlikely and the U.S. economy may instead manage to have some small growth this year. In its just-released global outlook, the IMF says the U.S economy is expected to see growth fall from 2% in 2022 to 1.3% in 2023 – but remain out of a recession. The view from the key retail sector remains cautious, however.
“While households will probably feel recession-like conditions this year, I do not expect that the downturn will be severe enough to become an official recession,” says Jack Kleinhenz, the Chief Economist at the National Retail Federation. “The good news is that corporate and household balance sheets are in the best shape we’ve seen going into a downturn. This should make any economic slowdown mild and limit the downside risks despite my outlook for the economy to staddle a zero-growth path during 2023,” he said.
What do the numbers show? Following two consecutive quarters of negative numbers in the first half of last year – a common but unofficial definition of a recession – gross domestic product grew 3.2% year-over-year in the third quarter. Growth slowed to 2.9% in the fourth quarter, but the year still came in at 2.1% above 2021. The National Bureau of Economic Research declined to declare an official recession because the decline in the first half of the year affected only certain sectors of the economy rather than meeting its definition of a recession being a significant decline seen across the economy.
While consumer spending grew 2.8% for the year, it was slowing in late 2022 and overall retail sales dropped 1.1% monthly in December as holiday sales turned out to be choppy. NRF says combined November-December holiday sales were up 5.3% over 2021 but were slower than expected.
“A month into 2023, the economy is facing stiff headwinds and – with the exception of easing inflation – will likely face more challenges before it gets better,” Kleinhenz said. “The debate on whether we are in a recession will heighten over the next few months, just like last year.”
Kleinhenz’s remarks came in the February issue of NRF’s Monthly Economic Review, which said the economy is “more resilient than expected” but nonetheless showing a mild slowdown as Federal Reserve interest rate hikes adopted to bring inflation under control “are having their desired effect.” Whether the economy will see a “sluggish pace of growth” or slips into a “considerable falloff” depends largely on whether the Fed can strike the right balance between interest rates and inflation, Kleinhenz said.
While the global growth may have “bottomed out,” the IMF says a global recession is “not expected” despite efforts by the Fed and other central banks to combat inflation. It now sees the U.S. economy growing slightly (+0.2%) faster than it did earlier.
“Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining,” writes Pierre-Olivier Gourinchas, Director of Research of the IMF, in a blog post. “U.S. growth will slow to 1.4% in 2023 as Federal Reserve interest-rate hikes work their way through the economy,” he says. The bad news is that IMF economists do not see much of a rebound next year when they forecast the U.S. economy will grow by one percent.
“U.S. growth remains stronger than expected, with consumers continuing to spend from their stock of savings, unemployment near historic lows, and plentiful job opportunities,” the IMF report says. It also says inflation is “peaking,” putting some potential positive surprises into the realm of possibilities, especially if consumers prove to have some pent-up demand to spend.
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