Throughout 2023, the war-cry from many economists and market experts was for an imminent recession in the US.
A tightening US Central Bank was going to derail consumption and investment and knock between 2 and 3% off economic growth. A stronger dollar would undermine exports. In a Wall Street Journal survey of economists at the start of the year, the average probability given for a recession was 63%. Highly respected research firm Ned Davis cited a 98% chance of a global recession.
The actual results for the year will probably show the US economy growing in 2023 around 2.5% and be one of the better developed economies.
And these calls for recession weren’t half hearted views but full throated cries for the US economy to give up ground.
One of the largest global investment groups, well into the year was publishing banner headlines of “recession without rescue” and urging investors to abandon current “playbooks” to navigate through this new set of circumstances.
Our own economic think-tank, the ESRI, spoke at the start of 2023 of international recession and much slower growth in the US, which would have a knock-on impact on our local economy.
Even into mid-year, the recession calls continued with Moody’s , the debt rating agency, calling for a recession in the US. In July, the World Economic Forum told us the US was already in recession.
Interestingly as well, many high profile individuals were on the recession bandwagon. Investor Stanley Druckenmiller said he would be stunned if there was no recession in 2023. JPMorgan CEO Jamie Dimon warned us of great economic danger lurking just over the horizon. In fact he has done so on about four different occasion in the past year!
Official channels also supported the view. “Nowcasting models” from both Atlanta and New York Federal Reserve Banks gave high probability to recession risk more or less throughout the year.
So the “crowd” was clearly disposed to hearing bad news. A PWC survey of Irish CEOs at the start of 2023 showed 83% expecting a global slowdown.
“Group Think” emerges as a major factor in so many experts being blind-sided.
Could the analysis , especially in the US, have been sharper?
Firstly not everyone was in the recession camp. Goldman Sachs held a non-consensus view of no recession through the year. How were they different? They actually felt that 2023’s rise in interest rates would be a lot less impactful than what had already been experienced. They also (rightly) placed much emphasis on real wage growth and jobs growth.
As I read CEO statements and conference transcripts from the big retailers through the year, one word which resonated was “resilience”. The consumption side of the economy which accounts for just under 70% was proving healthier than some anticipated. New jobs created typically and substantially surprised – last week’s number of another 219,000 a case in point. US wage growth, plus stellar growth in US jobs, well into the cycle, underpinned this consumption.
Keeping a closer eye on Main Street might have improved macro forecasts. Paying less attention to signals from financial markets (such as an inverted yield curves) when those same financial markets were anything but normal, might also have helped.
As for those who called it right in 2023 – what do they see for 2024?
Broadly — more of the same.
Tradewinds 