ORLANDO, Fla. – Despite recent consecutive-quarter declines in GDP the U.S. is not currently in a recession.
That was the assessment of Wells Fargo vice president and economist Charlie Dougherty, speaking to a packed audience of retailers and manufacturers at Nationwide Marketing Group’s PrimeTime event this week. Dougherty pointed to a number of countervailing factors that he said mitigate the term “recession” within the current economic climate, including ongoing high levels of job creation and still rising inflation.
“Households have been given a lot of money over the past few years, and people have been able to save a lot of that,” Dougherty said. “On top of that, there’s a lot of home equity in the market right now from rising home prices. All that accumulated cash is still in the economy.”
The difference, particularly for the furnishings business, is that much of that spending has shifted away from the home and more toward services in recent months. “I would characterize this as normalization,” he said. “We’re going back to 2019.”
Inflation however continues to be a challenge, one Dougherty described as, “by far the biggest problem holding down the economy.”
He noted that what started in the durable goods sector, driven by explosive freight rates and a dramatic imbalance of supply and demand has broadened to the economy at large. And while the Federal Reserve “has been tapping the brakes,” Dougherty said, he expects there to be at least one and possibly two or three more interest rate hikes in the coming months in an effort to slow inflation.
“We expect interest rates to go up more until inflation slows to the two to three percent range,” said Dougherty. “Right now it’s 8%.”
The result is likely to be a downturn in early 2023, although he suggested that it will be relatively mild and short lived with interest rates beginning to come down again within six to eight months. Another factor he said bodes well, particularly for home furnishings is the housing market.
Acknowledging the recent pull-back in housing activity Dougherty pointed out that it comes on the heels of record activity. Additionally, he pointed to the historically high number of consumers in the 25-35 age group and noted that this demographic cohort is just entering their peak household formation years.
“Demographics are a fundamental driver of the housing market, and the outlook there is very positive,” he said, adding that the industry could see a five-year window of strong activity.
Overall he noted that things are getting better “but will probably be a messy situation for the foreseeable future.”