Economists: U.S., Arkansas economies not likely to see recession in 2023
According to three economists who spoke Friday (Jan. 27) at the 29th annual Arkansas Business Forecast Luncheon held in Rogers, Arkansas and the U.S. will likely avoid economic recession primarily because of continued job and wage growth.
Around 1,000 people attended the event, according to officials with the Center for Business and Economic Research (CBER) at the Sam M. Walton College of Business at the University of Arkansas.
Simmons Foods CEO Todd Simmons was the moderator for the event and said three areas of concern from his perspective included the need for affordable housing in Northwest Arkansas to ensure people continue to move here. He also said the region’s population growth over the past decade has taxed transportation infrastructure, and keeping up with the higher demand is crucial to ongoing growth. Lastly, he said workforce development is imperative for the region’s future growth.
“The headlines we read about the region are great, but for that to continue, we have to drill down and focus on those key areas of concern,” Simmons said, adding that the problems will not solve themselves.
ARKANSAS JOB GROWTH
CBER Director Mervin Jebaraj echoed that sentiment with his somewhat bullish update on job markets around the state. Jebaraj predicts a soft landing for the Arkansas and U.S. economies.
He said Northwest Arkansas could add as many as 5,000 new jobs this year and lead the state. He expects help from Central Arkansas and Jonesboro metro areas with positive job creation year over year. The Hot Springs, Pine Bluff and Fort Smith metro areas have yet to return to pre-pandemic levels of job growth and labor force participation, he noted.
“While Fort Smith has not yet seen improvement in the labor participation rate, investments made downtown are paying off with more traffic and commerce on and around Garrison Avenue,” Jebarai said. “Hot Springs and the beauty of that area should also benefit from the outdoor jobs growth, and while Pine Bluff did get a casino that has not yet yielded labor force participation gains enough to offset losses.”
He said job growth is the main reason a recession will be avoided. Arkansas’ unemployment rate is 3.6%, just above the 3.5% U.S. rate. He said one employment sector growing around the state is the information sector, which includes media, film-making and technology.
He said the state also improved its standing in jobs related to the outdoors. Arkansas ranked 6th in the nation for outdoor economy employment, up from 19th before the pandemic. Jebaraj said the growing film industry as part of the reason for the improved standing.
‘RUNNING RED HOT’
Taking a broader view, John List, chief economist at Walmart, author, and professor of economics at the University of Chicago, said he’s more optimistic about the U.S. economy than average primarily because of five indicators he said indicate a soft landing rather than a recession.
“The current labor market looks very different from the market in most recessions. Since the beginning of 2022, the employment rate has dropped from 4% to 3.5%. Basically, anyone who wants a job has one,” List said.
He said it’s common to see layoffs increase amid economic downturns and the number of job openings also pull back. During the dotcom recession of the late 1990s, almost 2 million jobs were lost. Another 2 million jobs disappeared after the Great Recession of 2008, with 2.3 million jobs lost after the brief COVID recession.
“While there has been some negative news around layoffs recently, mostly in tech, real estate, crypto and e-commerce, those are largely in areas of the economy that saw significant growth during the pandemic. The hiring rate today is still above where it was from 2010-2019,” List said.
He said underemployment and declining wage growth are also not evident as they are in other recessionary times. He said underemployment is the lowest it’s been in the past 20 years. Wage growth cooled to 5.3% in the third quarter, but it’s still the highest of the past two decades. Lastly, List said, the labor participation rate grew in 2021, and while it remained steady in 2022, there has not been a decline.
“The labor market has been running red hot, and it’s hard to imagine it entering a deep freeze or the U.S. having two consecutive quarters of negative growth unless supply-side inflation has unexpected effects or there is another negative shock,” List said.
List joked that the first law of economic forecasting is that for every economic prediction there is an equal and opposite prediction.
“The second law is they are both wrong,” List said.
Julie Coronado, the founder of the economic research firm MacroPolicy Perspectives, provided a broader global economic forecast at the event. She said the global economy is proving to be resilient despite pressing geopolitical tensions, war and global fragmentation. She said the global economy will continue to benefit as inflation cools, supply chain backlogs improve, and sustained strength continues in the labor market.
Coronado said much of the runaway inflation can be attributed to too much money chasing too few goods during the pandemic, which also contained supply chain disruptions. She said consumers have shifted buying patterns, deciding they don’t want more stuff, but instead, they want experiences, travel and entertainment after two years of COVID home confinement. She said higher interest rates around the world will curb spending and that will reduce prices.
She said consumers are more price sensitive, and the recent holiday season was the most promotional in years. Coronado expects compressed profit margins this year for many goods-producing companies and retailers. She said lower net income will likely continue to have a negative impact on stock valuations, with the S&P 500 stocks expecting less than 1% profits in 2023. This is also a negative for household wealth via retirement and investment accounts. She said global disruption risks remain high, making it less likely to return to an era of low volatility in 2023.
She said China’s slower growth, population rate declines and loss of some U.S. manufacturing are likely to mean more fragmentation with global growth. Europe is still at war but has shown resiliency in finding different energy supplies instead of relying on Russia and other autocratic nations.
Coronado forecast a near miss of the recession in the U.S., with GDP growth around 1% and 1.5% this year. If that materializes, Coronado expects the Fed and European central banks would halt interest rate hikes. Longer term, she said slowing population growth in the U.S. and other major economic powers will present challenges for economic expansion.