The start of a new quarter and a new year bring with them a cautious glimmer of optimism that the economy is finally poised to begin a slow turn-around toward a gradual recovery.
To be sure, many challenges remain for households that have been weathering inflation for more than 18 months. But prices have been trending downward since hitting a high in June, with November’s inflation figures coming in at a better-than-expected 7.1% and December’s at 6.5%, in line with estimates. This trend gives rise to hopes that inflation may have peaked.
Supply chain problems are being slowly worked out and while retailers are still facing sporadic shortages, the word “normal” has been finding its way back into forecasts for 2023 as industries find and deploy strategic solutions.
The U.S. has begun to tackle semiconductor shortfalls with new legislation and new chip plants. And lingering problems have been helped by what appears to be a more tempered approach on the part of Chinese authorities dealing with outbreaks of COVID in certain provinces.
Despite higher retail prices, reports show that holiday spending was robust as consumers endeavored to make up for the lockdown years with more spending on gifts, entertainment, and travel. Consumers still seem eager to spend, but with fewer excess cash reserves than in the immediate post-pandemic months.
Additional positive news for consumers and household budgets is that prices at the gas pump have been edging downward as demand decreases during cold-weather months.
Probable headwinds
Investors remain jittery as uncertainty persists on Wall Street. The S&P 500 closed out 2022, its worst calendar year performance since 2008, down almost 20%.
Many stock market forecasts for 2023 foresee moderate improvement with investors advised to be patient, review risk, and think long-term. And perhaps to take advantage of any opportunities that may arise along the way while still maintaining a solid investing approach based on their short, medium, and long-range goals.
Some market analysts have voiced the belief that recent downturns may have injected a dose of reality to valuations that were hovering too high and brought welcome sobriety into areas where it was needed such as NFT’s and cryptocurrencies. The FTX bankruptcy and resulting shockwaves may or may not be an anomaly but revealed weaknesses in embracing investing fads, no matter how much buzz surrounds them.
The Federal Reserve has committed to additional interest rate hikes this year but hinted at the possibility of slower and less aggressive increases. Notes from the FOMC, however, voiced concern about the continuing strength of the labor market.
There are still close to 10.5 million job openings and the number of available jobs has topped 10 million for 13 consecutive months; before the pandemic began in February 2020, the highest on record was 7.7 million. There are roughly 1.7 jobs per unemployed American.
This indicates that demand still far outpaces the supply of available workers. With so many jobs unfilled, will it be possible for companies to avoid raising wages to attract candidates, thus increasing inflationary pressures?
Even if the Fed does move to slow future interest rate increases, persistent inflation, the cooling economy, and interest rates that are the highest in decades lead many forecasters to predict at least a mild recession for the coming year.
Tempered expectations
For the first quarter of 2023, economists are forecasting a continued slowing of the economy and recessionary pressures lingering. Although recession fears remain, many businesses and investors have been preparing for some time and now see the possibility of a market correction as a somewhat positive sign that the numbers are headed in the right direction.
Wall Street is likely to remain volatile and global markets will continue to have an impact domestically.
With altered expectations, we at Lesko Financial are looking forward to steady growth as we continue to weather ongoing uncertainty, slower overall recovery, and a wish for a return to more normal markets late this year.
It’s a good time to review and, if necessary, adjust, your own investing strategy. It’s also important to reset your financial goals for the new year and make plans to achieve them. Our advisors are ready to meet virtually or in-person to help you stay confident and strong heading into 2023. www.leskofinancial.com