Did We Avoid a Recession? Some Economists Think So.

Remember the sure-thing recession that economists predicted would happen early in 2023? The new stance seems to be “maybe not.”

That’s what a report from the New York Times indicated this week.

There are a number of reasons cited for this change of heart. 

1. Employers are still adding jobs. More than 500,000 were added in January 2023 and unemployment dropped to 3.4%, a low we haven’t seen since 1969.
2. The housing market may be starting to stabilize.
3. Goldman Sachs dropped its odds of a recession in 2023 to just 25%, which is down from its 35% prediction a month ago and a far cry from the 60%+ odds economists were hedging back in December. 

While these are all good signs for what’s seemed to be a shaky economy as of late, a number of economists still look to just one key factor when determining if we’re in a recession: declining Gross Domestic Product (GDP) for 2 consecutive quarters. But guess what? That, too, is a positive number since the GDP grew in both Q3 and Q4 of 2022.

No Recession? What It Looks Like on Main Street.

Optimism is always a good thing — and when it comes to consumer sentiment and spending, the US economy is still riding high. In fact, consumer sentiment is the highest it’s been in 13 months and overall consumer spending continues its year-over-year climb. Plus, inflation dropped to 6.5% in December 2022, which was the 6th straight month that inflation declined. Experts at Kiplingers anticipate inflation to hit somewhere near 3.2% by the end of 2023.  

Where does this leave small businesses? Most are looking at overall lower operating costs than they were mid-2022 and without drops in consumer spending, both of which add up to bigger profit margins. 

Which leaves one last expense to discuss: interest rates. Will they continue to climb?

According to the Federal Reserve, which has continued to make incremental increases to the prime interest rate in an effort to curb inflation and stave off a potential recession, the answer is yes, interest rates will rise until inflation hits something close to that sweet 2% again. We’re not there yet. And, BTW, economists have been questioning for years whether that 2% number is even something that should be targeted … or if it will ever be achievable again.

How will this affect small business borrowing? Interest rates will still probably climb but the impact of a higher interest rate on a business loan now may be offset somewhat by the potential for better profit margins.

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