“I can’t find a recession in the data, but I can find it everywhere else you read or hear about the economy. But I just don’t see it.”
That was the key reading from Marci Rossell, expert economic speaker and forecaster, and former CNBC chief economist, who delivered her take on the economy before a packed crowd at the CREW Network annual conference Sept. 22 in Chicago.
“There are indications such as companies saying that they are going to lay off workers, but saying it and doing it don’t mean the same thing,” she said.
And while the past two quarters showed negative growth in the US gross domestic product (GDP), a leading indicator, as many say, “That’s only a rule-of-thumb,” she said.
Instead, Rossell described today’s economy as an “emotional recession” because so much focus by consumers is on gasoline prices.
“People are so sensitive to it,” she said. “And even though the average household spends 5% or less on energy from their income, they fuel up their cars often and they see that big number on the sign every day.
“A lot of people, too, are combining or confusing inflation with recession. We’re hearing about the potential for a hard landing. There are comparisons to the 1970s.”
As a result of that decade, the Federal Reserve chair Paul Volcker (1979 to 1987) used similar tact, raising the federal funds’ target rate eventually to 20% to combat inflation that was rising 10% to 15% for entire years for 10 years, she said.
To help fight inflation, current Federal Reserve chair Jerome Powell raised rates 75bps this month – the third month in a row at that degree, and fifth consecutive month overall.
That put the key benchmark federal funds rate at a range of 3% to 3.25%, the highest since before the 2008 financial crisis.
The Fed officials also laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting show policymakers expect interest rates to hit 4.4% by the end of the year.
“Inflation right now is in the high 8s and my sense is that it peaked in June when it reached 9%,” Rossell said. “In 1981-82, we went into a fairly deep recession but we survived it.”
Real Estate an ‘Inflation-Sensitive Industry’
Inflation will affect interest-rate-sensitive environments like real estate.
“About six months ago, Powell said he’d do what he has to do to get inflation under control. He let us know this,” she said.
“At that point, a lot of deals started getting done because people knew that ‘free money’ wouldn’t last forever. They jammed about three years’ worth of deals into two and now they are in a pausing pattern.
The Fed is moving to get things back to something ‘closer to normal,’ which means 2% inflation.
Rossell’s Take on Offices and Labor
Roussel said that today’s remote and hybrid work schedules are not so much a product of the pandemic. “We were moving in this direction even before the pandemic, and COVID-19 accelerated this transition.
We’re not in a ‘death-to-the-office’ moment, this was coming, anyway.
She also said that labor challenges are the biggest factor in the economy.
“It’s not that people don’t want to work – especially younger workers – it’s that there simply aren’t many around who can – they weren’t born,” Rossell said.
“It takes 18 years to ‘make’ a worker, and this generation simply isn’t as big as the Millennials,” she said. “By estimates, there will be 300,000 fewer people turning age 18 each year (compared to 10 years ago) for the [foreseeable future].
“The remedy to this is automation. It has to be. Using robots to replace the work of people in certain positions.”