2023 Ventura County Economic Outlook Report(1)
Executive Summary:
Another year has lapsed, and no recession despite all the dire predictions.
Here’s what we wrote last year in the May 2022 edition of the Ventura County Economic Outlook:
No recession is forecast this year or next. However, the risk of recession has risen, and the economy is closer to a tipping point if a combination of events were to occur:
- Escalation of the war
- A deepening of supply problems that will aggravate inflation further,
- A return of coronavirus variants
- Inflation spiraling upward
- A contracting stock market
- A slackening of demand for housing, autos, or other interest rate-sensitive sectors
Under a scenario in which some negative growth were to manifest, layoffs for workers in some industries would also ensue. Layoffs mean less demand for goods and services, including housing.
Advancing 11 months, we did not reach the tipping point because there was no (1) escalation of the war, (2) deepening of the supply bottlenecks, (3) return of COVID-19 or (4) slackening of demand for autos or most other goods. Nor was there a spiraling upward of inflation after July 2022, and the stock market more or less settled into a lateral drift.
Clearly, the housing market is in recession, but this lone sector’s decline has not been enough to drag the rest of the economy with it.
Now we have a new spate of issues to grapple with that would increase the likelihood of Recession with a capital R:
- Banking sector collapse
- More than anticipated interest rate hikes
- A surge of layoffs where workers actually go unemployed
- Inflation stubbornly remains sticky in the 5 to 7 percent range.
- A clear erosion in consumer demand
- A clear erosion in business fixed investment
Another rate hike on March 22 pushed the fed funds rate to 5.0 percent, with Fed Chairman Jerome Powell stating that the central bank remains “highly attentive to inflation risks.”
Another hike this year is in the cards, maybe even two. A surprising third would likely be a nail in the coffin of the expansion, although even a second hike may do that.
A key indicator of labor market tightness and wage inflation, job openings declined in January and February. The number of openings is at its lowest in two years. This is the kind of labor market loosening the Fed has been looking for, and evidence like this could reduce the necessity for future rate hikes.
Regional banks are now suffering, not because they are falling into the same chasm as Silicon Valley Bank, but because depositors are fleeing the small banks like rats, moving to too-big-to-fail banks that Congress will surely save.[1]
We are on a vigilant “bank watch,” though to date, we’ve not seen the spread of a regional bank contagion.
Right now, in April of 2023, the California economy is still expanding though the pace has weakened. Most of the positive news is associated with the labor markets, which have not weakened despite headline news about layoffs, especially in the tech sector.
[1] Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank
TELL YOUR FRIENDS ABOUT CITIZENS JOURNAL Please keep us publishing – DONATE
