Economic Update | JULY 2023

Economy: Expect economy to slow into a mild recession later this year

If economic activity slows later this year, as expected, unemployment could drift higher and reach 5% by 2024. In the 2008-2009 recession, unemployment peaked at nearly 10%.

Labor: Regional disparities among overall employment levels

Unemployment remains near historical lows, with some disparities among regions. This likely reflects internal migration patterns over the last 5-10 years and relative levels of economic activity.

Inflation: Some categories of inflation have slowed, some are still high

Prices in some categories have improved versus the year-ago period, while other areas, including rents, remain elevated. Broadly, we expect a continued moderation of inflation through 2023 and 2024.

Commodities: Prices could continue to be volatile through year-end

Energy prices have led the broad retreat in commodity prices year-to-date amid the uncertain economic outlook.

Interest rates: Fed’s fastest hiking cycle in decades coming to an end

We expect one more 25bp hike to a 5.25-5.50% target range at the July FOMC meeting, before going on hold through year-end. We do not foresee any rate cuts until the second quarter of 2024.

Consumer: Spending activity showing signs of normalization

After consumer spending surged in 2022, retail sales trends in 2023 are reverting towards long-term averages.

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