With so much uncertainty and many opinions by experts and pundits, it helps to go back to the roots of basic investing which is looking at the data to get a basic outlook for the next year. Though the selection of which data represents the economic indicators for the future is mostly subjective, a few facts are hard to ignore.
Unemployment is one of the main “economic condition” indicators of a country that depends on consumption. In the October Preliminary Unemployment data, 49 states reported an increased unemployment rate month over month compared to 21 states in September by an average of 4.37%. Labor force participants increased in 48 states by an average of 1.27%.
Fed rate hike. The federal reserve has increased the federal funds rate by the most amount in 30-plus years, four consecutive 75bps. With the world waiting for the next federal committee announcement on the next rate hike, it is hard to argue against 2022 has seen a rocket ship-like rate change. It is reasonable to expect the credit market to get tightened and small businesses to start feeling the squeeze. Major employers slashing their workforce dominated the news but small companies are laying off workers as well. This can have a ripple effect quickly in the gig economy.
Easy money is over. During the pandemic, both fiscal and monetary tools worked their best stimulus act ever by injecting an unprecedented amount of cash into the economy without any increase in productivity accompanying it. It has shown its effect on the inflation side. With historic high inflation and congress being divided after the recent election, it is unlikely that more economic stimulus is coming to the rescue. Not to mention, unemployment benefits have come down compared to the COVID era. Federal reserve has been consistent in its messaging of commitment to the “longer-run goal of 2 percent inflation”.
However, consumers have a “deep pocket” from the record stimulus. 46 states reported a decrease in unemployment rate year over year in October preliminary data by an average rate of 17.7%. It is unclear how deep this “pocket” will go. The amount of household debt has increased by the highest amount in 20 years in Q3 2022 year over year
Given the above, it is hard to deny that 2023 will be another low-growth year for businesses. With Europe struggling with its energy issues and China fighting internally over COVID restrictions, there aren’t many bright sides to look to when it comes to growth in global business in the next 6 to 12 months.
