Thu, April 25, 2024

Mondays with Rick: What’s in store for the economy for the rest of the year?

Dr. Rick Franza, Professor of Management at the Hull College of Business, discusses a different, timely business topic each Monday in this column. This week, he theorizes what may happen with the economy during the second half of 2023. The interview has been edited for clarity and impact.

ABD: We’re at the halfway mark of 2023. Can you give us an idea of what might happen with the economy in the second half of the year?

Rick: Sure, with the caveat of “Who really knows?” But we can read as many tea leaves as we can and make our best guesses based on what people who know say.

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There’s still uncertainty in the financial markets. We had a great run in June, but a lot of that was driven by AI stocks, and that’s a narrow market. There are a number of good signs, but also some concerns. I think the probability of a recession has gone down and probably has been pushed out a bit. It may not come until 2024. The consensus among economists is that there will be a recession, but not until late this year or next year. The most prevalent forecast now is a soft landing for the economy, which wasn’t the case a month ago.

Nationally, new housing starts went way up, more than was expected, for both single-family and multi-family homes. That’s a great sign. The reason housing prices have been so high was because of limited inventory. As the supply goes up, pricing should go down and loosen up the market.

Energy prices have kind of stabilized and food prices have gotten better. We’ve seen leveling for a year or more.

ABD: That sounds better than we thought. What are some of the concerns that lie ahead?

Rick: I expect that inflation will go up some, but not by a tremendous amount. Inflation is still pretty resilient, but it has gone down. Hence, we’ve had the Federal Reserve not raise interest rates this month. Economists think the rate increases are coming to an end and are predicting no more than 50 basis points increase.

Inflation is still the No. 1 issue we’re dealing with. The market seems to be betting that inflation is getting under control and the interest rate hikes are over. However, if something startling happens in the economy, we could see an increase. A good sign is that the Product Price Index, which gives manufacturers insight into inflation, has done better.

ABD: If unemployment increases, how will that affect those businesses that are still having trouble filling all their open spots?

Rick: Looking at weekly unemployment claims, the issue isn’t always the numbers, but how they match up. The question is, Will the industries losing jobs match up with the industries that have jobs? I think people are starting to go back to work. People start looking at their debt, especially credit card debt, and realize they need to get their butts back to work.

ABD: You’ve mentioned in previous interviews that the activity of the stock market isn’t always a good indicator of the economy. What should businesses and consumers look to in order to spot trends in the economy?

Rick: The stock market and the economy have diverged over the past few years unlike it ever has before. The bond markets might be a better indicator.

Pay attention to what the Fed does. Their big meeting is in late August and a lot of information comes out there. It will provide signals for their September meeting. What affects us most is interest rates – how they affect us directly and how they affect inflation.

Other indicators are the Producer Price Index and the Consumer Price Index. The Producer Price Index is a leading indicator for the Consumer Price Index. Understand what commodities might affect your business and how those are moving.

ABD: So, is this cause to be optimistic for the economy for the rest of the year?

Rick: Overall, I’m cautiously optimistic. Economists never talk in absolutes; they talk about percentages and probabilities. That’s a wise way for all of us to be. But right now, the probability of the best-case scenario is higher than the worst-case scenario.

Inflation is still the biggest boogie man and right now, that has the highest impact on the economy. The target is 2 percent annual inflation and we’re still at 4 to 4.5 percent. But interest rates are starting to plateau and that’s good for everybody. The likelihood of inflation is down. The caution is that something unexpected could happen, but right now, the trajectory looks pretty good. Things look better than even two or three months ago.

ABD: How should businesses, especially small businesses, react to this?

Rick: Right now, I’d play the long game. Work to retain your employees and customers and keep doing all the good things you should be doing. Make sure to keep your customers satisfied.

I wouldn’t button up all my cash, but it’s also not a time to go crazy. Things are still uncertain, but it’s not the time to be overly cautious. Keep an eye on the Fed – now through September will be a key time for them.

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