By Some Measures, A Recession Seems More Likely Than Not
National Multifamily Housing Council
NMHC provides a forum for leadership and advocacy that promotes thriving rental housing communities for all.
Just one year ago, the Federal Reserve began tightening monetary policy to counter inflation. Raising the Fed funds rate by 450 basis points was widely expected to result in recession, yet the unemployment rate is at a 50-year low while consumer spending remains robust.?
Give it time, said Chief U.S. Economist for Oxford Economics Ryan Sweet at NMHC’s Research Forum in Miami last month. “A recession is more likely than not. It should come in the second half of 2023. It’ll be mild, your garden-variety downturn.”?
Sweet said a key metric to watch was the “prime age in employment to population” ratio, which measures workers ages 25 to 54. It’s very strong right now with more than 80% of those in that category employed.?
And that’s really frustrating the Fed. The Fed needs the unemployment rate to rise to somewhere between 3.5% and 5%. However, many companies, particularly in retail and restaurants, are hoarding employees, hedging recessionary fears by cutting hours in lieu of layoffs.?
As a result, the Fed is not just hitting the brakes when it comes to monetary policy, it is pulling the emergency brake to try to hit their goal of 2% inflation.?
The Federal Reserve remains committed to bringing down inflation via tighter monetary policy, thereby raising the prospect of slower economic growth. According to the most recent NMHC Quarterly Survey of Apartment Market Conditions , a majority of survey respondents (64%) believed that a “bumpy landing” is the most likely scenario, where growth slows to a below average or negative rate and then rebounds to a sustainable pace. Twenty-one percent of respondents thought that the Fed’s actions will lead to a “hard landing”, or recession scenario, while just 11% predicted a “soft landing”, where economic growth simply slows to a more sustainable pace.