Economist predicts brief recession in 2023

The chief economist for Mariner Wealth Advisors called for a 50% or higher probability of a “short-lived, inflation-driven recession” in 2023.

William Greiner gave his reasons for predicting a brief recession during a recent webinar. Some of those reasons include:

• Consumers’ “real” income streams are down 2.9% over the past 12 months.
• Retail sales are down 0.1% year-over-year.
• New housing starts are down 8.8% year-over-year.
• Consumers’ revolving debt levels are 15.1% over last year.
• Year-over-year personal savings rate is down 4.8% from last year.

Sentiment data is poor and the willingness to transact is weak, Greiner said, citing several surveys. A National Federation of Independent Business optimism index showed small business optimism is down 15% from this time last year. The National Bureau of Economic Research showed consumer sentiment at its lowest level since 1980. The Bureau of Economic Analysis showed CEO outlook dropped in the third quarter of 2022 from a previous high in mid-2021 while capital spending also dropped during that period.

“You must not only have the ability to transact business but you also must have the willingness to transact,” Greiner said. “I’m suggesting that small business, large business and consumers all have poor sentiment. That indicates the willingness to transact is weak.”

Recession in the U.S. is nothing new, Greiner said, noting that the U.S. economy has been in a recession 12% of the time since World War II. A recession in 2023 will be somewhat different from previous economic downturns, he said, describing a 2023 recession as being inflation-driven.

“Recessions occur because a major factor in the economy is out of balance. We have too much or too little of something. Recession is a time out, if you will,” he said. “In this situation, inflation is out of balance and that will drive a recession.”

Potential causes of a 2023 recession, he said, include:

• Poor consumer sentiment.
• Elevated oil prices.
• Russia’s invasion of Ukraine leading to European economic contraction and high levels of political uncertainty.
• Tightening monetary policies.
• Real estate prices poised to contact.

These potential causes, he said, could lead to a shorter-than-average recession and a stock market contraction of between 20% and 30%.

Although inflation will be a major driver of a future recession, Greiner said inflation isn’t all bad news. Historically, inflation has calmed rather quickly after peaking, he said. The market also tends to perform well in the 12 months following the inflation peak. He predicted inflation should be at about 5% by the end of 2023.

The market downturn of the first nine months of 2022 is typical in midterm election years, Greiner said. The market performance in the 12 months following the market correction has been strong and October historically has been an inflection point. He predicted the majority of damage to stock prices already occurred in this cycle and that stocks will rebound in 2023.

“The fundamental reason why we see the market not performing well before the election is uncertainty about the outcome of the election,” he said.  “This time around, we saw a change in power in the House. But not in the Senate. We’re in a split environment where we will be at loggerheads in D.C., and where large spending, large taxation programs are not likely to happen. Washington probably will be in a frozen state as far as large programs being passed. That means less uncertainty that the market has to deal with.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].