The Deep File: 2023’s uncertain economic waters
In which, the month of January delivers a very mixed bag of good and bad news for the American and global economies alike.
Ideally, when you start a new year, you’d like to start with a good idea of where you’re headed and what you can expect as you make plans for the coming months. Unfortunately, for the average working man and woman that’s becoming increasingly hard to do as the American economy spent the first month of 2023 vacillating between good news and bad news before settling on a general consensus of uncertainty.
January 6: New year, not so new economy
Heading out of 2022 and into 20223, the expectation is that America and much of the rest of the world will likely face economic recessions of varying degrees.
Despite a strong labor market in December, America’s tech sector continues to shed jobs with Amazon being the latest big name to announce widespread layoffs. Additionally, major retailers like Macy’s are also downsizing. It kind of makes me wonder where exactly we’re adding the jobs? If the jobs report is positive, but major sectors and employers are shedding jobs, who is picking them up? It could be that privileged (or protected) economic sectors in the Biden industrial policy are picking them up, but that should include the tech sector.
So, uncertainty and unevenness continue to be the name of the economic game in 2023, which is probably a big part of what Gallup reports to be American pessimism heading into the year.
January 13: Inflation, back, but not back, but kinda back
Latest inflation numbers showed that inflation was down overall in the last month, but consumers continued to see significant price spikes on goods ranging from eggs to natural gas. So, while it appears that inflation is down at the macro level, and the micro level it's not really gone. For most American families costs are still climbing. So, while the overall inflation rate coming down is heartening news, it's by no means solved, or even relieved (6.5% is still much more than the 2-3% we’ve been used to for the past several decades).
January 20: Debt contagion
In the economic world, the concept of contagion is well known: in a globalized economy, financial crises can quickly jump national borders. Episodes of such contagion were well known in the 1990s in Latin America and Asia.
Today, financial contagion rears its head once more as countries stagger under massive national debt loads generated by debt spending during the pandemic, the resulting inflation surge, and war in Ukraine.
Governments across the world are scrambling to manage their balance sheets in a variety of ways, but are finding they have little room to maneuver with voters who are already hard pressed by cost of living increases.
In the US, Congress is facing a bruising debate over raising the debt ceiling (good luck with a GOP-controlled House) in the hopes of staving off some combination of tax increases, deep budget cuts and/or interest rate increases. With most Americans living on slim to nonexistent margins, there are no good policy choices here.
In France, President Macron’s pitch to raise the retirement age is being met with mass protests, even as business closures in France skyrocket.
Across the rest of Europe, leaders are acknowledging that efforts to keep costs of living down are falling short midway through this winter without Russian energy.
In China, the CCP announced a one-two punch of first-time negative population growth and 3% GDP growth. While the latter number would be great for an economy like the US, for a middle income country experiencing demographic decline, it could very well be a harbinger of the middle income trap. And, for a government that has pinned its legitimacy on rapid GDP growth, that 3% may as well be a recession.
Overall, then, the global economy is not looking healthy in the early going of 2023.
January 27: McCarthy, Biden and the taxation tightrope
President Biden will give his 2023 state of the union speech on February 7 this year, but that hasn’t stopped him from firing some early warning shots towards House Republicans.
With a brewing fight over the debt ceiling and Republicans calling for a tax hike in order to boost government revenues (about the only thing you can do if you’re not going to borrow more or cut expenses), President Biden and Speaker McCarthy are in a bit of a proverbial Mexican standoff as both try to demonstrate fiscal responsibility while blaming the other for the nation’s economic ills.
Those economic ills look a little less dire with a fourth quarter GDP expansion of close to 3%, but depending on which economist you read that growth can quickly collapse if demand dives under heavy taxes or supply dries up with reduced government spending. So, while the economic numbers are a nice recession reprieve of a sort, I don’t expect the policy world to let that reprieve last long.