What Could Go Right? Why There Won’t Be Recession in 2023

The Much Anticipated 2023 Recession is Unlikely to Happen

It looks increasingly likely that the much feared economic recession of this year will not take place. Signs of economic recovery are everywhere, from the abundance of help wanted postings to the thriving hospitality industry. Air travel, which was significantly affected by the pandemic, is already seeing a huge resurgence with over 2.5 million daily passengers. In addition, the stock market has been up 14% in the year to date despite the tumultuous times. All of these factors suggest that the economy is on a path towards recovery, proving that we can overcome difficult periods of time with the right attitude and determination.

As we stand on the brink of the midpoint of the year, questions abound as to whether the economy will remain afloat for the remainder of 2023. While it may be too early to definitively answer this question, the current indicators suggest that, barring any unforeseen negative exogenous shock, the remainder of the year looks promising. According to the most recent Blue Chip consensus of economists, the second quarter is expected to show a growth of 1%. Similarly, the Atlanta Fed’s GDPNow number is indicating a growth rate of around 2%. While these figures are not yet cause for celebration, they do indicate that the economy could remain stable for the duration of 2023. As Dr. Martin Luther King Jr. famously quipped, “the arc of the moral universe is long, but it bends toward justice.” We can take this same sentiment and apply it to the economy, affirming that the arc of the economic universe may be long, but it will bend towards growth.

The University of Michigan consumer sentiment survey rose 8% in June to its highest level in four months, a promising sign that inflation is easing and people's optimism is growing. This is especially reflected in the older demographic, who have seen the biggest increase in Social Security benefits since 1981. Consumers are being more selective in their spending habits, choosing to invest in food, travel, and restaurants rather than cars and jewelry. Beyond that, the recent passage of three bills by Congress totaling $2 trillion in spending – the Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors and Science Act, and the Inflation Reduction Act – is a positive sign for the long-term health of the economy.

Earnings & Economic Calendar

Last week, the S&P 500 suffered its biggest loss in over two months, closing down 1.4%. This ended a five-week winning streak and was a stark contrast to the prior eight weeks of gains in the Nasdaq Composite. The Dow Jones Industrial Average also had its worst week since March. As the second-quarter earnings season looms - just three short weeks away - more data and earnings reports will give us a greater look into the economy.

Carnival kicks off the week on Monday, with Walgreens Boots Alliance following on Tuesday. Wednesday brings Micron Technologies and General Mills, then Nike, McCormick, and Paychex on Thursday. Constellation Brands wraps up the week on Friday.?

On Wednesday, the Federal Reserve will release the results of its annual stress test of the nation’s largest banks. This will include details about how much banks can return to shareholders via stock buybacks and dividends.

Offering insight into consumer spending and the housing market. On Tuesday, the Census Bureau will report on durable goods orders in May, alongside new-home sales data. Meanwhile, the Bureau of Economic Analysis will release personal income and expenditure data for May on Friday.

Economists project that income will rise 0.4% and spending will increase 0.3% last month, while the Federal Reserve's core personal-consumption expenditure price index is expected to be up 4.7% from the same period last year.

Chart of the Week: S&P 500 performance in the first year of past bull markets

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.