2023 2023 ECONOMIC OUTLOOK

BY LAURA HANDKE

During the Annual Convention, the American Gelbvieh Foundation (AGF) provided an update as well as a speaker to address challenges within the 2023 economic outlook.

Al Knapp, AGF President, introduced Micheal Paul of Eagle Strategies, LLC. The Foundation has worked with Eagle Strategies, LLC., for several years to provide succession and transition guidance to membership.

“The elephant in the room is inflation,” Paul shared with attendees. “We haven’t experienced inflation like this for decades, since the 1970’s. So if we look at the Consumer Price Index (CPI), which hit 9% this month, if we look at the baseline where inflation was low, we are still at the same elevated level where prices are today. There isn’t a lot of relief in sight.”

While the slowed CPI is a good indication that inflation is slowing or, at least, plateauing, inflation will remain historically high for the foreseeable future.

Paul added that the CPI doesn’t reflect household budget, noting that energy inflation is about 17% while food inflation is hovering around 11%, “That’s where a lot of the pain is,” he shared.

In December the Federal Reserve made the last rate hike of 2022, imposing a half-percent raise, which marked the seventh consecutive hike in 2022 in their last attempt to curb inflation for the year. Unfortunately, by increasing the cost of borrowing, loans and credit card balances have become increasingly costly for consumers to carry.

Paul said that most economists are predicting a 2023 recession, however, by definition, we are already in a recession.

Earlier in 2022, the Federal Reserve had hoped for a possibility of a soft landing, but as the year progressed those hopes dwindled. Paul notes that the Federal Reserve also thought that inflation rates would be transitory, calling the looming recession a “wait-and-see” situation.

“We had two quarters where we had negative GDP growth. Normally, that’s a recession, but no one is wanting to call it that. In the third quarter we did see positive GDP growth,” he said, adding that while job opportunities are holding, we are beginning to see layoffs from larger companies, another economic indicator of a recession.

“Consumer sentiment is at an all-time low. There is such pessimism in the marketplace and that has reduced consumer spending which is the largest component of GDP,” Paul said. “We also have to look at the inverted short-term rates that we are seeing. When we have short term rates that are higher than long-term rates—right now there is 70 basis points between 2-year treasury and 10-year treasury, that’s a very big indicator of a recession.”

Controlling the things that can be controlled was at the top of Paul’s list for staying ahead of the recession. He and his team recommend a three-tosix-month emergency fund of expenses. For those closer to retirement, he recommends a higher emergency fund.

Continue making self-employment and 401K contributions.

“We have volatility in the market, when the market is lower, you’re buying more shares so when things swing back the other way, you will be in a better position,” he says.

Paul closed with a note of optimism.

“Even though most economists are thinking that we will go into recession in 2023, most also believe that we will begin to rebound by the end of 2023,” he said.

*New York Life nor Michael Paul provided neither financial counseling or advisement at the 2022 National American Gelbvieh Convention. All comments were Paul’s personal thoughts regarding the state of the economy.