Brice Wallace
An economic forecast for 2023 repeatedly stressed that the only thing of which you can be certain is uncertainty.
The fuzzy outlook was manifest in a survey of a crowd gathered for the Zions Bank Economic Outlook event at the Zions Bancorporation Technology Center in Midvale. Asked about the current status of the national economy, about half of the audience indicated it is not {mprestriction ids="1,3"} in a recession but will be in the next 12 months. The rest were split about whether the economy is currently in a recession and whether it will avoid one.
“Here’s the problem: We don’t know,” surmised Robert Spendlove, the bank’s senior economist. “We don’t know who is right. … One of these scenarios is correct, but we just don’t know which one.”
Spendlove paraphrased recent quotes by Fed Chairman Jerome Powell, warning that no one knows the probability of a recession or how bad one would be. So, the thinking goes, if the top official at the Fed is unsure what will happen, how can anyone else be sure?
“And that really is kind of the theme right now of the economy, is this great level of uncertainty,” Spendlove said. “We’re in a historic period in the economy, and we continue to see trends that we weren’t expecting and we continue to see impacts that are truly historic. … The biggest question is that economic growth. It is uncertain. We just don’t know for sure because we’re seeing those continued impacts — whether it’s the [COVID] pandemic, whether it’s disruptions in China, the war in Ukraine — continue to create these disruptions that we’re dealing with.”
A traditional indicator of a national recession is an inverted Treasury yield curve, in which returns are higher on short-term investments than long-term ones. That’s happening now, as well as the Federal Reserve raising interest rates in an attempt to cool the hot economy. It has raised those rates over 4 percent during the past nine months. But, Spendlove said, “the Fed messed-up,” with those increases failing to bring down inflation to the desired 2 percent level. It was 7.1 percent in November.
“I think that inflation is probably going to continue dropping, but then it’s going to get sticky right around 4 percent,” he said.
Expect the Fed to continue raising interest rates, perhaps to around 5 percent, he predicted.
“One of the things we’ve learned is that the Fed has not been very good about anticipating where they need to take those rates,” he said. “So, in a lot of ways, the Fed has lost a credibility with markets and with Wall Street because they were so wrong about where they had to go.”
Meanwhile, the nation’s nonfarm job growth was strong in November, adding 263,000 jobs. “The labor market is still overheating,” he said. The Fed’s goal is to slow the economy through interest rate increases, “and we’re just not seeing it,” he added.
Concerns linger about whether Fed interest rate changes could push the economy into a recession, as seen several times in the 1970s, Spendlove cautioned.
“We’re just starting this process. If the Fed doesn’t get that inflation back down to 2 percent, we could have a repeat of what we saw in the 1970s, so that’s why the Fed is going to keep on this and, in my opinion, I think the Fed is going to keep those rates higher for a longer period of time until that inflation is solidly back to where it needs to be.”
The national unemployment rate is another economic sticking point, sitting at 3.7 percent. “The biggest struggle right now is the labor shortage and employers finding the employees they need. We’re starting to hear, both regionally and nationally, about small businesses not being able to operate because they don’t have the employees that they need. So this is our biggest struggle,” Spendlove said.
The national labor participation rate is 62.1 percent, far below the 67.3 percent rate in March 2000 before COVID hit.
“We’ve got millions of people that have left the labor force that are sitting on sidelines and are not coming back in, at least the data indicates that they are not coming back in,” he said. The main group consists of people who retired early and aren’t returning “even with tightening financial conditions,” he said.
High demand for labor is driving up wages. The average wage inflation from 2007 to 2022 was 2.9 percent, but in November it reached 5.1 percent.
“Now, it’s great if you’re an employee. It’s great if you’re getting a 5 percent raise — and you know, this is the average, so a lot of people are getting more than that — [but] it’s really tough on employers,” Spendlove said.
That could cause a spiral of higher consumer prices due to employers constantly needing to pay their workers more, he said.
However uncertain the national economy’s future is, Spendlove expressed optimism about the Mountain States region and Utah specifically. While its inflation rate of 8.3 percent was above the nation’s 7.1 percent in November, the region saw large job growth during the pandemic. Utah is seeing growth in nearly all sectors and its unemployment rate is 2.2 percent.
“And that is making it difficult for the economy to grow,” he said. “It’s making it difficult for businesses to expand, and it’s constraining that overall economic growth,” he said.
“While we are exposed to that national risk, while we are exposed to some of the struggles of the nation, our region is resilient, our economic conditions look good,” Spendlove concluded.
“I’d refer you back again to the Great Recession of 2009. That’s when Utah emerged as the strongest state in the country. Utah was the best state coming out of the recession because of our unique characteristics. I think we still have those and I think our state is really well-positioned for success in the future.”{/mprestriction}
