Sponsored: Westfield Bank – Despite likely recession in 2023, U.S. economy will emerge on top

Business owners and consumers trying to make sense of the state of the economy and plan for the future can attest to the considerable amount of uncertainty felt in 2022. On the one hand, we have consistently low unemployment and a growing GDP. On the other hand, we’re experiencing record-high inflation and dealing with a volatile stock market.

I recently sat down with Brian Toma, a managing partner and registered investment advisor at Freeman Heyne Toma Financial Advisors, to discuss the economic uncertainty, what business leaders and consumers can expect in 2023, and to provide strategic guidance and advice. You can watch or listen to the full discussion at westfield-bank.com/sks21.

Expect a mild and persistent recession

We can only grasp where we are today and predict the direction we’re headed by recognizing the significant government stimulus and low interest rates seen in recent years. This created a honeymoon phase in the American economy that was bound to end sooner or later. How soon and how abruptly this phase came to an end are questions up for debate.

“The Federal Reserve failed us,” Brian told me, noting that as the country came out of the pandemic in 2021, interest rates should have been increased at a more incremental rate to slow inflation. Instead, despite the warning signs, the Federal Reserve waited and forced rates to rise at a more aggressive pace throughout 2022. This is the recipe for a recession likely beginning in early 2023. Given the positive aspects of the economy, I predict it won’t be too painful, but it could persist for a couple of years.

Perspective is important. Brian reminds us that for far too long, we’ve been accustomed to low interest rates, and because they have increased to historically normal ranges so quickly, it feels like a knee-jerk reaction. However, we’re not in a bad place in the grand scheme of things.

Focus on what you can control

How impactful the likely recession will be is out of the hands of business owners. With this in mind, double down on utilizing the available tools to navigate the economic challenges ahead.

Unwavering in his advice to all his clients, Brian emphasizes pulling together and building a dream team of experts (an accountant, attorney, insurance agent, financial adviser and banking partner) around you who have your best interests in mind and understand your goals.

It’s important to be realistic as we head into 2023, but my faith remains high that the American economy will prevail stronger than before. My best advice is to stay the course. Business owners and consumers alike have reasons to remain confident and optimistic about reaching their goals.

You can partner with Westfield Bank today to secure your financial freedom. Learn more at westfield-bank.com/financial-freedom.

Forecasting economic conditions in 2023

Forecasters anticipate a subdued economic outlook in 2023 due to several factors, including a sharp slowdown, rising inflation, tightening financial conditions, geopolitical uncertainties and the lingering impacts of the COVID-19 pandemic. Global growth is anticipated to slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023, according to the International Monetary Fund. In the U.S., declining business and consumer confidence, as well as a drop in consumption and investment, will likely shift the economy into a recession early in 2023. By 2024, forecasters anticipate the U.S. economy will regain momentum and return to a slow growth, according to The Conference Board, a global nonprofit thinktank and business membership organization. Below are some additional economic forecast insights:

IN 2023 AND BEYOND
The U.S. recession is expected to be short and mild, thanks to a robust labor market and fairly healthy consumer and business balance sheets. Risks associated with a longer-term U.S. outlook are tied to geopolitical strife, environmental challenges, labor markets and inflation, according to The Conference Board.

MEANWHILE, LOCALLY
Economic activity slowed in the Fourth District, which comprises Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia. Business activity ebbed in recent weeks, even among previously strong sectors, such as manufacturing and professional services. Lending has also declined in the Fourth District, as higher interest rates contributed to an ease in commercial lending. Fourth District firms were more pessimistic about the outlook in the near term, according to a Nov. 30 Federal Reserve Bank Beige Book national summary.

GOOD NEWS
Firms in the Fourth District have continued adding to their payrolls, and a tight labor market has prompted upward pressure on wages to attract and retain workers.

ECONOMIC ACTIVITY INDICATOR
The Fed’s short-term rate target should be at 3.52% in the final quarter of 2022. The Fed is expected to raise its target rate in mid-December and then again in 2023. Some Federal Reserve Bank of Cleveland officials surmise that the target may even hit close to 5% in 2023.

SMALL BUSINESS OWNER OPTIMISM
Despite near-term economic uncertainties, small business owners are optimistic about the future. In fact, two-thirds of small businesses expect revenue increases in 2023, and more than half plan to expand their business, according to the U.S. Small Business Administration. E-commerce is also expected to boom. The global e-commerce industry is expected to grow to $8.1 trillion by 2026.

SOURCES: Federal Reserve Bank of Cleveland, Federal Reserve System, The Conference Board, International Monetary Fund, U.S. Small Business Administration

Compiled by Kathy Ames Carr, Crain’s Content Studio-Cleveland

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