Personal Reflections of 2022 and Beyond
Topics: Predictions and Economic Concerns
We are nearing the end of 2022. From a financial and economic perspective, it has been a scary and volatile year. A main uncertainty we face is if we are in a recession or are we approaching a recession? Earlier this year, there was disagreement on what actually qualifies a recession. According to Investopedia, the "common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession”. However, economists and other related professionals believe that more indicators go into determining what actually qualifies a recession.
From this conversation, it is evident that more goes into determining an economy’s quality than just GDP growth. Viewing other indicators and data like unemployment, inflation, and interest rates are important in order to gain a deep understanding of the strength of an economy. As of now, the US economy seems to be in a tough spot. Although, it was announced a little bit ago that real GDP grew by 3.2% in Q3 2022. If we fully abided by the previous textbook definition of a “recession” then we are out of a recession! A very sad hooray!
It is way too early to celebrate this growth in real GDP. Even though this is real GDP and not nominal GDP, inflation is still a major concern in the future. Additionally, business investments may get thwarted as the Federal Reserve continues to increase interest rates going into 2023. As I have said in many previous posts, the Federal Reserve is in a difficult spot. People criticize the central bank for continuing their rate hikes; however, inflation would run rampant otherwise. Inflation is currently cooling off, but only by a marginal amount.
For almost the entire existence of this newsletter, inflation has been a problem. Without taking aggressive action (or any action for that matter), it puts lower-income individuals at such a disadvantage. With the rising price of goods, their income and savings decrease substantially. I would even argue that not increasing rates hurts the long-term outlook of the stock market and economy. Keeping rates stagnant will inevitably cause inflation to remain at high levels. Businesses and the stock market will love lower rates as the cost of borrowing will be cheap; however, trying to create a hot economy like this will not thrive with inflation still being relevant.
Recently, I went back to look at my “top 5 economic concerns for 2022”. These concerns were not put in any particular order, but I feel that these predictions were heavily relevant in the past year. Even real estate prices are still at a higher level than they were back in 2008. Currently, I still consider this a pertinent concern as homes are still less affordable than ever.
My economic concerns are derived from what I think could prevent an economy from being sustainable over the long term. With that being said, here are my top 5 economic concerns for 2023:
1.) Inflation
2.) Income inequality (concentration of wealth in the country’s top earners)
3.) Less reliance on globalization (more of a prediction than a concern, but could have major negative implications when looking at GDP growth)
4.) Delinquencies with “buy now, pay later” financing
5.) Increase in US household debt
This Week’s Links:
Cormac McCarthy Loves a Good Diner: https://www.nytimes.com/2022/12/19/books/cormac-mccarthy-food-passenger.html
Wells Fargo to Pay $3.7 Billion Over Consumer Banking Violations: https://www.nytimes.com/2022/12/20/business/wells-fargo-consumer-loans-fine.html
Toyota Chief Says ‘Silent Majority’ Has Doubts About Pursuing Only EVs: https://www.wsj.com/articles/toyota-president-says-silent-majority-has-doubts-about-pursuing-only-evs-11671372223?mod=hp_lead_pos5
U.S. Postal Service to double EV delivery fleet purchases: https://www.tradingview.com/news/reuters.com,2022:newsml_L1N33A1AK:0-u-s-postal-service-to-announce-significant-increase-in-ev-purchases-source/
The Watch I Wore Most in 2022: