11.28.22
While economic momentum has protected the US economy this year, what's around the bend in 2023 is the bigger worry, says American credit rating agency S&P Global Ratings.
Extremely high prices and aggressive rate hikes will weigh on affordability and aggregate demand. With the Russia-Ukraine conflict ongoing, tensions over Taiwan escalating, and the China slowdown exacerbating supply-chain and pricing pressures, the US economy appears to be teetering toward recession.
Continued high prices through most of 2023 and the federal government’s decision to aggressively raise rates are leading households to pull back on spending and businesses to cut costs in response to slowing demand, according to S&P Global Ratings’ “Economic Outlook US Q1 2023: Tipping Toward Recession.”
"With odds that the US economy will avoid recession over the next 12 months dimmed, we continue to expect the US will fall into recession in 2023," said US Chief Economist Beth Ann Bovino. "We now expect GDP growth to weaken to -0.1% in 2023. Peak-to-trough US GDP will decline by 0.8%, a mild recession in line with the 1969/1970 recession."
Recent indicators support the credit rating agency’s view, as rising prices and interest rates eat away at private-sector purchasing power. Indeed, of the leading indicators it tracks in its Business Cycle Barometer, only one of the nine indicators was in positive territory through October— seven were negative and one was neutral.
Although its 10-year/three-month term spread indicator remained neutral in September, daily readings have been inverted since October 25. Moreover, both the 10-year/one-year and 10-year/two-year have been inverted, on average, for three straight months, which signals a recession. The average 10-year/three-month is headed for an inversion in November, with the average through Nov. 22 at -0.35%. If it's inverted for the second straight month, that would also be a recession signal, the agency said.
