Economic outlook: stubborn inflation, rising rates, slower growth

The U.S. holds the ingredients and core economic fundamentals for a stable economy moving forward, said Kevin Depew, RSM Deputy Chief Economist and National Industry Eminence Program Leader.

Depew was the keynote speaker at the Quad Cities Chamber Economic Forecast and provided an in-depth analysis of the national and regional economy to help QC businesses prepare for the coming year. He said 2010-2020 was a decade marked by insufficient aggregate demand, low inflation, excess savings and globalization. Now we are dealing with insufficient aggregate supply, negative supply shocks, geopolitical tensions, inflation and tighter monetary policy – some of which he believes will persist going forward. Analysis shows the probability of the economy moving into a recession, which usually hovers at 15%, is now elevated to 65%. 

He said the U.S. economy is facing the following: 

Economic themes: 

• Growth slowing
• Hiring remains strong but moderating; capital expenditure boom possible after recession
• Inflation becoming sticky; rising interest rates
• Fed rate increases to continue, including balance sheet runoff
• Recession probability 65%, mostly due to geopolitical issues

Core economic fundamentals:

• Unemployment to increase to 3.8% by the end of 2022; 4.6% in 2023
• $1.4 trillion in excess savings versus pre-pandemic (down from more than $2 trillion in July)
• Low unemployment, strong household balance sheets
• Steady corporate profits, low debt

Stubborn inflation:

• Supply chain constraints will last into 2023
• Core inflation remains sticky, while top-line all-items inflation will fall markedly
• Wage pressures at the lower end of the income ladder

Depew cautioned businesses against relying on the 2008 recession playbook because so much in the world has changed since then. "If you are operating a business in any kind of recession, it is terrible. But I would encourage businesses to look past a recession as much as they can, especially those that may have some financial flexibility, because I think there is a better chance than is given credit that we don’t go into recession at all or if we do, the aftermath will look a lot closer to the 80s and 90s. That is a much different economy. It is one that supports higher interest rates, supports employment and supports robust economic growth,” he said.

Learn more about economic factors impacting your business. The Real Economy Blog from RSM US LLP provides timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including The Real Economy monthly publication and the proprietary RSM US Middle Market Business Index (MMBI).

Thank you to our co-presenting sponsors IMEG Corp. and Mediacom Business; platinum sponsor NAI Ruhl Commercial Company; gold sponsors AM General, Mills Chevrolet, Quad City Bank & Trust, The Family Credit Union and Werner Restoration Services; and location sponsor Rhythm City Casino Resort. Keynote speaker was presented by RSM.