When assessing economic health, perception can be reality.
Most economists agree that we’re not in a recession now, but they’re less united on whether one will occur in the US this year, with forecasts giving between a 35% and 100% likelihood.
As fears of a recession loom in 2023, we see mixed economic signals: some show market weakness and contraction while others show market strength and expansion. They’re all useful data points and trends to consider.
As we brace for the impact of a possible recession this year, here are 10 must-watch economic trends for marketing and business leaders in 2023.
GDP rose 3.2% in Q3 2022 after contracting for two straight quarters, indicating that if we were in a recession, we’re not in one now. Still, GDP contraction is just one way to determine whether an economy is in recession. Job creation, consumer spending, and the supply and demand of products are other variables that indicate economic health.
As of January, interest rates are 4.5% — more than a point higher year-over-year. The US Federal Reserve raised rates seven times in 2022 to combat inflation and may raise them further this year. Although it may take a year or longer to know whether raising interest rates is working, there are early signs of improvement.
Using the Consumer Price Index, inflation fell five consecutive months in 2022 from a historic high of 9.1% in June to 7.1% in November. It remains high and continues to have broad effects across business.
Rising interest rates have also made borrowing costlier for consumers and businesses. Commercially, higher interest rates may incentivize procurement and finance teams to pay suppliers or vendors in cash, or find alternative financing options, such as supply chain financing. Higher interest rates have also had an outsized impact on the tech market, making it substantially harder to raise money and forcing many startups and tech providers to lay off staff.
These were mixed bags in 2022 – and 2023 may be no different. Job creation was strong through 2022, averaging 392,000 new jobs per month, but was 30% lower than 2021. Unemployment in the US remains at a historically low 3.7%, but with 62.1% labor force participation — matching February 2020. Wages continue to grow, but slower than inflation. Watch these numbers carefully in Q1.
Sky-high fuel costs have been declining from their summer peaks – especially gasoline, which is now less expensive year-over-year – easing pressure on consumers who now have a little more spending money. However, diesel fuel remains costlier year-over-year, which makes logistics and supply chain movement more expensive and contributes to high commodity and retail prices.
Holiday spending rose 7.6% over 2021, despite record-high inflation, rising interest rates, economic uncertainty, and layoffs. However, 2021 saw a bigger year-over-year increase, 8.5%, over 2020, suggesting that consumers are feeling more pain and or have less confidence in the short-term health of economy.
These measures improved in December after dipping earlier in Q4; but they’re lower year-over-year and must be watched. Consumer expectation is just 82.4%, which suggests that many sense that a downturn looms. Businesses need confident consumers that are optimistic about the economy in the short term. They’re not there yet.
The Institute for Supply Management’s monthly Purchasing Manager’s Index fell to 49% in November – down from 50.1% in October, indicating that the US manufacturing sector contracted last month. The PMI is an economic bellwether and a solid indicator of global economic strength. November’s PMI breaks a 29-month expansion streak (since June 2020).
The DJIA, S&P 500, and NASDAQ had their worst yearly performance since the 2008 recession. They ended 2022 down 8.8%, 19.4%, and 33.1%, respectively. Although these are lagging indicators of a recession, they’re worth watching, as bear markets can spook investors and consumers and discourage spending.
No one knows whether the US or global economy will enter a recession in 2023. In fact, an informed decision maker can note these trends and make a reasonable argument for either scenario, as most economic trends listed here have an upside and a downside.
So, we begin 2023 reading the tea leaves and bracing ourselves for an economic storm that may or may not make landfall. Whether or not it hits, tech and marketing leaders will need to be smart with their investments. While many will be quick to make cuts to proactively counter the uncertainty, that’s not necessarily the prudent move.
Harvard Business Review conducted a study on marketing budgets and recessions, and famously declared that cutting marketing spend during a downturn is “today’s equivalent of bleeding – an old-fashioned but once widespread treatment that actually reduces the patient’s ability to fight disease.” HBR found that the companies that bounced back strongest from a recession usually did not cut marketing, and in many cases, actually increased their investment.
Looking ahead, the one thing we can be confident in is that the next 12 months will be uncertain, to say the least, and that there will be a big opportunity to capitalize on the fear of competitors that quickly cut back by getting smarter and more aggressive with talent, PR and marketing.