(The Blade) - Prepare for recession to hit in the second quarter of 2023 and last through the end of the year, says Kurt Rankin, vice president and senior economist for the PNC Financial Services Group.
The silver lining is it is expected to be shallow, with gross domestic product falling just 1 percent in each of the last three quarters of 2023, Mr. Rankin said.
A more traditional recession from peak to trough is a decline of 2.5 percent, he said. This one also is unlikely to be marked by massive layoffs as in the past, he said.
Employers have continued to hire throughout 2022, afraid they’ll suffer turnover and not have enough staff to meet product and service demands, Mr. Rankin told an audience Wednesday in Maumee who attended the PNC Economic Forecast Luncheon at The Pinnacle. It was the 36th year for the annual event held each November.
During the upcoming recession next year, employers are expected to halt hiring as demand slumps but not resort to mass layoffs that have deepened recessions in recent history, he said.
“Businesses will be pulling down their hiring signs,” Mr. Rankin said in an interview after the program.
A recession happens when unemployment rises and the gross domestic product shrinks over several quarters. GDP is the value of all goods and services produced and sold in a country over a specific time period.
What is driving the U.S. economy to recession is inflation, and the Federal Reserve Bank’s fight to contain it.
The Fed is seeking to lower demand for homes, rent, cars and credit-card spending by raising interest rates and making it painfully expensive for consumers to borrow money to spend. The fall in demand is aimed at lowering inflation, which is growing to heights not seen in decades. Prices jumped 8.2 percent in September versus the prior year.
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The Fed rate has risen quickly this year from basically zero to between 3 percent and 3.25 percent after an increase of 75 basis points in September. PNC expects additional hikes in November, December, February and March to bring the Fed rate to between 5 percent and 5.25 percent.
Toledo and other transportation-heavy cities like Detroit probably won’t suffer disproportionately in the upcoming recession as they did in 2008, 2000 and the late ‘80s, Mr. Rankin said.
In those recessions, new U.S. car sales dropped off a cliff and caused massive job losses. In the coming mild recession, new car sales have less far to fall because they are trending today closer to 14 million units than the 16 million in 2007 and 17 million in 2000.
Car sales this year have been crimped by parts shortages and supply chain issues.
Even nationally, Mr. Rankin said he expects unemployment to reach 5.5 percent to 6 percent at worst next year compared with 10 percent at the trough of the last recession in October, 2009.
Strong consumer spending, which Mr. Rankin expects through the holidays, has delayed the onset of recession this year.
Many consumers saved money during the coronavirus lockdowns and business interruptions by having limited opportunities to spend and banking stimulus payments.
But those savings are being exhausted and credit card debt is rising, factors that are combining with higher interest rates to slow consumer spending into next year, Mr. Rankin said.
PNC’s other luncheon presenter was Andrew Schuler, investment managing director of PNC Private Bank.
Mr. Schuler said he was neutral, not bearish, on the current equity markets since declines this year in the major exchanges brought stocks more fairly priced to the earnings that respective companies have reported.
Bonds also have declined dramatically this year but may eventually shake off their funk as Fed-prompted interest rate hikes start to make them more attractive in comparison to equities.
He said it is probably early to invest heavily in equities or bonds at this point as the economy loses steam. So he said he is making the rare recommendation to allocate some investment funds to cash, “to keep the powder dry” once the direction of stocks and fixed-income instruments becomes clearer.
By David Barkholz
