Happy 2023. This promises to be a year of challenges, but nothing floor covering retailers can’t handle. Last year was a jumble of flip-flopping growth, decades-high inflation and fears that a steep slowdown could plunge the country into recession. (Newsflash: It didn’t.) But big questions remain, and economists say we’re in for an even more fraught guessing game in 2023.
So, for my first column of the year, let’s look at the economy as it stands right now and where it looks to be going.
- Inflation: Americans are finally beginning to feel relief after months of rapidly rising prices on basics such as food, fuel and rent. Overall inflation has fallen for five straight months and is expected to continue its descent in 2023. Some goods have actually gotten cheaper in recent months.
- Gasoline prices: Average gasoline prices, which peaked at about $5 a gallon nationally this past summer, have retreated from record highs, thanks in part to a decline in global demand.
- Borrowing costs: In its effort to combat skyrocketing prices, the Fed has raised interest rates seven times in the past year. Although the central bank controls just one interest rate—the federal funds rate, which banks use to lend money to each other overnight— its actions have an almost immediate impact on all types lending, including mortgages, car loans and credit card rates, all of which are getting costlier.
- Home sales: The run-up in borrowing costs, including a doubling in mortgage rates, has resulted in home sales falling for 12 straight months, and construction of new single-family homes is at its lowest level since May 2020, when much of the country was shut down. There are also signs that rapidly soaring home prices have stabilized in many parts of the country.
- Manufacturing: It isn’t just the housing market that’s in free fall. Americans are spending less on other big-ticket items, too, such as furniture, cars and appliances that were in high demand early in the pandemic. As a result, U.S. manufacturing has been on a steadily downward path.
- Job market: The job market has for months been a bright spot in the economy. The unemployment rate of 3.7% remains near historic lows. However, economists warn that the labor market is likely to get shakier in 2023, as the Fed’s tightening works its way across the economy.
- Personal savings: The personal savings rate, which rose to 34% at the beginning of the pandemic, has fallen dramatically in recent months. The good news is most Americans have gotten raises in the past year. But a lot of those wage gains have been negated by inflation. As a result, more people are dipping into their savings accounts.
- Stock market: The stock market, which rose to meteoric highs in January last year, spent the rest of the year on rocky terrain. Shares of Meta (formerly Facebook) have plunged nearly 70% in the past year, while shares of Amazon are down 55%. Overall, the S&P 500 index has lost 20% of its value from a year ago.
- GDP: More broadly, the U.S. economy has rebounded after unexpectedly shrinking in early 2022. An increase in government spending and a narrowing trade gap, with American retailers importing less and exporting more, helped GDP late in the year. But economists warn that those gains could be short-lived.
- Recession forecasting: What’s next for the economy? Current forecasts vary considerably. However, there’s no question that we’re in for more of a cooldown, though it’s unclear how rapidly or dramatically that might happen. The Fed is hoping to slow the economy in a gradual and controlled way, though many experts agree that things could quickly spiral down, possibly leading to a recession. We’ll just have to wait and see how this all plays out.