New Economic Data Suggests Recession May Not Happen

(KNSI) – A local economist says we might avoid a recession, after all.

Saint Cloud State University Professor King Banaian says even though Thursday’s initial estimate for U.S. gross domestic product growth missed expectations (1.1% versus 2.0%, according to Reuters), he is impressed by the economy’s resilience in the face of interest rate hikes.

“There was a substantial decrease in the amount of inventories that were being held. Consumption actually grew at a pretty healthy rate but a lot of that was being met by goods and services that were produced prior to the start of the first quarter.”

Banaian says the inventory drawdown is necessary because people are valuing experiences, such as concerts and vacations, more than a new television and other goods since the end of the COVID-19 lockdowns. As long as the consumer continues to hold up, Banaian says our service-dominated economy will too.

A closely-watched inflation measure came in higher than expected for the first quarter of 2023. The Personal Consumer Expenditure index was 4.9%, ahead of the 4.7% estimated. Banaian says the figure could alter Federal Reserve policy in the coming months.

“Data like we’ve seen today… I wonder particularly with the inflation number being what it is, I wonder what they [The Open Market Committee] will signal in terms of future rate increases.”

On top of the hot inflation print, the BEA says disposable income soared, with the personal savings rate rebounding to 4.8%. That should supply enough dry powder for consumers to continue to spend.

Banaian says all signs point to the economy being able to handle additional rate hikes and he thinks a soft landing, meaning no recession or, at worst, a mild one, is likely coming this year.

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