About that recession predicted by many economists earlier this year?
Won’t happen, say Chapman University’s top economists.
“We are now projecting that 2023 will finish the year with real GDP growth at 2.4% rather than our December forecast of -0.4%,” the economists led by President Emeritus Jim Doti said in their annual Economic Forecast released last week.
In June, Chapman predicted the economy in the third quarter would fall 5.2% followed by a 1.8% decline in the fourth quarter. Six months later, they reported the economy grew 4.9% in the third quarter and an expected 1.1% this current quarter.
The once gloomy recession forecast has shifted because of sharply higher fiscal stimulus—caused by increased government spending—that boosted job growth and consumer spending.
“The resulting boost in consumer spending helped the economy skirt a recession, but it will have negative long-term economic consequences,” the forecast said.
That includes elevated mortgage rates that “will prevent any meaningful recovery in residential housing.”
“Although we believe that the housing sector has reached a trough in both housing starts and home sales, we don’t see a housing recovery in the offing,” the forecast said.
They are predicting the U.S. economy will slow from an estimated 2.4% growth this year to a 1.2% increase in 2024.
The bottom line?
The U.S. economy will experience weak performance during the first half of 2024. Whether it will be weak enough for a recession is too close to call, the Chapman economists said.
The forecast was presented to several hundred guests at the Musco Center for the Arts on the Chapman campus on Dec. 14.
“I know why most of you are here. Don’t kid me now,” Doti told the audience good-naturedly. “You’re here to see me squirm and somehow get out of our forecast” for a recession.
There is no recession, he acknowledged emphatically from the center’s stage, explaining in detail how the expanded U.S. deficit led to higher spending and ultimately helped to avoid a recession.
Doti also cautioned that the resulting fiscal stimulus was like taking an “energy pill” that will be followed by “withdrawal symptoms” for 2024. That led to the projected 2024 weak growth of about “half of what we got this year.”
“Interest rates are going to stay elevated,” he predicted.
Inflation, Interest Rates
The recession for this year was pretty much off the radar even before the Chapman report, since the U.S. economy has already grown in the first three quarters of the year. A recession requires two or more back-to-back quarters of economic contraction, according to a generally accepted definition.
“We’re certainly in store for a possible recession in 2024,” said David Bahnsen, managing partner at the Bahnsen Group in Newport Beach. “It would just simply be if the lag effect of tight monetary policy that didn’t cause a recession this year ends up catching up to us.”
Though Bahnsen noted the possibility of a recession next year, “I wouldn’t bet on it.”
The Federal Reserve held rates steady at its meeting last week. Inflation has stabilized in comparison to the highs seen last year, though they are still above pre-pandemic levels, making Federal Reserve rate cuts unlikely in the near future.
Treasury Secretary Janet Yellen said during The Wall Street Journal CEO Council Summit last week she sees no reason “why inflation shouldn’t gradually decline to levels that are consistent with the Fed’s mandate.”
OC Construction
In Orange County, a declining population will contribute to a slowdown in the local construction industry, while the region will experience slow job growth next year, Doti’s team said.
“Job growth in the county has closely mirrored that of California over the last five years,” the forecast said. “Our forecast for 2024, which calls for slow but slightly positive growth of 0.6% for the county, is roughly the same as our forecast for California.”
From the 2019 forecast to the 2024 forecast, payroll employment has increased by almost 50,000 workers in Orange County.
“That’s an average annual percentage increase of only about a half percent per
year. Construction, manufacturing, and financial services experienced virtually no growth.”
Other key members of Doti’s team are Raymond Sfeir, a Chapman professor of economics, and Fadel Lawandy, director of Chapman’s Hoag Center for Real Estate and Finance.
OC Jobs Up Slightly in 2024: Chapman
Chapman University economists released their annual economic forecast on Dec. 14, with the following predictions for Orange County for 2024:
- Job growth: “Slow but slightly positive growth of 0.6%” for OC, roughly the same as the forecast for California.
- The current slowdown in the construction industry in Orange County “will continue in the long run,” led by the decline of OC’s population, lowering housing demand.
- Expected decline in new housing permits for apartments, due to “the fact that financial returns on apartment investments are so low.” Total residential building permits are expected to slide to 7,142 in 2024 from an estimated 7,670 this year.
