Economic advice to business: Toss 2008 playbook

A recession may be looming in 2023, but if it does happen, it may not be as severe as the previous historic ones the Quad Cities region and the nation have weathered. That was one of the silver linings mixed in with often gloomy data and challenges shared with Quad Cities business leaders on Thursday, […]

A recession may be looming in 2023, but if it does happen, it may not be as severe as the previous historic ones the Quad Cities region and the nation have weathered. That was one of the silver linings mixed in with often gloomy data and challenges shared with Quad Cities business leaders on Thursday, Dec. 1, by Kevin Depew, deputy chief economist and Industry Eminence Program leader. Mr. Depew oversees a team of 60 industry analysts for RSM US LLP from his New York office. More than 300 business and community leaders attended the Quad Cities Chamber’s 2023 Economic Forecast at Rhythm City Casino Resort, Davenport. It was Mr. Depew’s fourth appearance as the keynote speaker at the chamber’s invitation to help prepare the region for the year ahead. “This recession is not going to look like the last one,” Mr. Depew told the breakfast crowd. “Now all recessions are bad and if you're in business any kind of a recession is terrible, but I would encourage businesses to look past a recession as much as they can.” That’s because, he said, “There is a better chance than is given credit that we may not go into a recession at all or the aftermath is going to look a lot closer to the ‘80s and ‘90s” than other more damaging economic upheavals, for example, the global Great Recession and housing market crash of 2008.

His message to Quad Cities businesses was: “Your 2008 recession playbook, you can’t use that. This is not that recession that we’re about to go into. This is something that is wholly different and looks like something from the early ‘90s recession or maybe 2001.” If and when a recession does hit in 2023, however, the impact may be felt just as keenly because it’s been three decades since businesses and consumers had to worry about inflation. It didn’t matter what business you were in, “inflation was just an afterthought,” he added. Why? Because there was an ample supply of money (via lower interest rates) for business investments and startups and the supply chain was humming along, except in periods of natural disasters. Recovery from those shocks also was quick. While many blame the pandemic for today’s rising prices and recession threat, Mr. Depew said COVID-19 merely pulled “forward some of the changes that were in the process of happening” and now the current decade will look much different than the last. For example, in 2008, a key problem was insufficient demand for goods, now it’s insufficient supply. That is slowly improving but supply shocks still are working their way through the global economy. For example, the Russo-Ukrainian War and a growing rift between the United States. and China that could have significant implications for the supply chain. As a result, the U.S. and other nations are moving to what he called a “regionalization” of trade. The U.S. for example, is finding trading partners nearer our shores, for example, Mexico, Europe and South America. We’ll see even fewer goods from Asia, he added.  Even with regionalization of trade, he said, consumers and businesses can expect shortages and higher prices to continue in random places, or as one economist has called it  “random acts of economic violence” on the supply chain side, Mr. Depew said. But goods are only part of the problem – services are a major challenge to economic recovery. Consider, Mr. Depew said that in addition to signaling a slow down in interest rate hikes, on Wednesday, Nov. 30, Federal Reserve Chair Jerome Powell also warned that the U.S. worker shortage remains the largest roadblock to slowing inflation. Services, not supply, continues to be the biggest economic challenge, Mr. Depew added, because there aren’t enough employees available to get the work done. The culprit in the crippling talent shortage is not only the pandemic itself but America’s aging population and the 3.25 million in “excess” early retirements it spawned, he said. Many workers aged 55 and older left the workforce prematurely due to health concerns. Others decided to remain home as default childcare providers for sons and daughters when they went back to work. Investment capital also will be a challenge to the economy going forward. Before now ample capital was available to try new ideas and concepts, Mr. Depew said. High interest rates and an increased demand to show a real return on profit is making it harder to get that investment. Despite all that Mr. Depew remains hopeful that the recession may not be as deep as Americans fear. Some keys to combating it include raising short-term interest rates to help build more housing and creating housing policies that will lead to more homes being built. That doesn’t mean, however, that the recovery will come without pain. For example, he said, the Fed would like to see an inflation rate of 2%, which experts say translates to the loss of 5.3 million jobs. “That’s not going to happen,” Mr. Depew said. “It’s unacceptable policy.” If, however, the U.S. central bank can pull inflation back to 3%  “that would be the definition of a soft landing and only have a loss of 1.7 million jobs,” he said.   That won’t be enough to “move the needle” on the labor shortage and it still will allow workers to transition to new jobs.