‘A Weird Spot’: Economy is on Solid Footing Despite Widespread Anxiety, Experts Say

Article originally posted on AZ Central on December 7, 2023

The economy seems on track to deliver more of the same next year, and that could be good or bad, depending on your perspective.

Inflation might continue to moderate, interest rates could start coming down, unemployment may rise but not to alarming levels and the economy once again might dodge a recession, said speakers at a forecast luncheon Wednesday hosted by Arizona State University and PNC Bank.

But while those and other key indicators are flashing neutral to favorable signs, many Americans remain gloomy.

“We’re in a weird spot,” said Augustine “Gus” Faucher, chief economist at PNC Financial Services. “People have anxiety, but the economy is objectively in good shape.”

Dennis Hoffman, an ASU economics professor, concurred. He cited a “strange brew” of “really good economic news” mixed with grim responses from opinion surveys.

Who’s still hurting? Renters, young families, seniors

In one such reading that he cited, from a Harris Poll in September, 51% of respondents mistakenly said they thought unemployment was near a 50-year high, prompting Hoffman to wonder whether they misunderstood the question.

With a recent jobless rate of 4.2% and 512,000 jobs created in Arizona since April 2020, the state’s employment picture is “incredibly strong,” he said.

Consumer finances remain generally solid, he added, with households paying relatively little to meet debt payments. Also, both bankruptcies and foreclosures are still at moderate levels, though those could spike if the economy hits a prolonged rough patch.

Hoffman said certain groups of Arizonans clearly are hurting from the combination of rising interest rates, elevated inflation, high housing costs and other pressures over the past couple of years.

These groups include renters, commuters, young families struggling to buy a home or afford child care, seniors lacking sufficient long-term savings and workers without good jobs who face heavy student-loan repayments.

But many other consumers have enjoyed a steady increase in net worth in recent years with favorable employment prospects, Hoffman added, and Faucher said optimism among small-business owners stands at its highest point since PNC started to survey this group nearly 20 years ago.

Also, national employment has risen by nearly 5 million jobs since before the pandemic.

“It’s not just employment but also broader measures of the U.S. economy” that are favorable, Faucher added.

Will a recession hit Arizona in 2024?

Hoffman said he remains optimistic for both the nation and Arizona next year. For example, he sees 1.9% employment growth for the state in 2024, not much different from an expected 2% gain this year.

Population growth for Arizona could be about the same both years, at 1.4%, while personal incomes are projected to rise by about 4.5% in 2024 compared with an estimated 5.8% this year, according to his forecast.

Faucher sees a mild recession materializing by around the middle of next year, partly because of the sharp rise in interest rates of late. The yield curve remains inverted — meaning yields on short-term bonds exceed those on long-term bonds. That’s an unusual occurrence that in the past has pointed to economic downturns.

But Faucher predicted that any recession would be mild, with only a modest impact on unemployment, partly because consumer spending has been resilient and employers could be reluctant to lay off workers given how tight the job market has been. Nor is an economic contraction a given, especially in light of a brisk 5.2% increase in third quarter U.S. Gross Domestic Product.

“There’s still a 40 to 45% chance we get out of this without a recession,” Faucher said.