Wednesday, February 28, 2024

Tech Layoffs & Real Estate Bubble: the Economy in 2023

The US economy is in a precarious place heading into early 2023. On a general note, the US GDP grew by over 2% in Q4 2022, and inflation is slowing down from the peak of Summer 2022. Additionally, the US stock market made solid gains to kick off 2023. In fact, the S&P 500 notched over a 6% gain in January 2023 after a dismal year in 2022. So based on those factors, you might think that the US economy is heading in the right direction.

However, there are some troubling economic trends brewing in America. While the US is not technically in a recession, many economic analysts fear a looming recession in 2023. So then, what are some key indicators that indicate a possible recession?

Well then, you are in luck today since you clicked on this article. Here the three economic trends to keep an eye on in the coming year. We will wait to see if tough times ahead for the US economy:

1. Mass Layoffs

In the past few months, major players in the Tech sector and High Finance have announced massive layoffs. On Wall Street, financial firms are laying off workers in amounts not seen since the 2008 Great Recession. In Silicon Valley, notable Tech giants–such as Google, Facebook, Microsoft, Amazon, and more–have also cut tens of thousands of jobs over the past few months.

Simply put, companies fire workers in anticipation of an economic downturn. When times are good, companies usually hire more employees. On the other hand, companies typically layoff workers to cut costs and protect the bottom line when revenue is not growing. Therefore, these mass layoffs in both the financial and tech sectors are foreboding signs for the US economy in 2023.

2. Real Estate Slowdown

Over the past few years, Real Estate prices have skyrocketed across the United States. From early 2020 to Summer 2022, the median US house price rose over 40% in that timespan. However, housing prices have finally declined over the past several months consecutively.

Rising mortgage rates and high inflation in the past year have priced many potential homebuyers out of the real estate market for the near-term. So, the recent slowdown in real estate prices appears to remain in place heading into the heart of 2023.

According to many real estate experts, a major housing market crash (e.g. the 2008 Housing Crash) does not appear likely in 2023. However, a slowdown in the real estate market will adversely affect homebuilding firms and any industries related to homebuilding. So, a slowdown in the Real Estate market can contribute to a worse economic environment.

3. Rising Interest Rates

Rising interest rates are poised to make an outsized impact on the US economy in 2023–and likely for the worse.

Last week, the US Federal Reserve (the USA’s Central Bank) promulgated its decision to raise its target interest rate by another 0.25%–to a total of about 4.5%. What’s more, Federal Reserve Chair Jerome Powell signaled that the Fed will likely continue to increase interest rates since inflation remains remarkably high in the US.

After slashing interest rates in 2020, the Fed started raising interest rates from almost 0% at the beginning of 2022 to over 4% in December 2022. For context, current interest rates have not been this high since 2007–before the start of the 2008 Great Recession.

You may wonder what’s so bad about the Fed raising interest rates. Good question!

For the economic layman, rising interest rates historically precede economic recessions. For the economy as a whole, high interest rates make loans/borrowing more expensive. Higher borrowing rates eventually lead to less entrepreneurship, more businesses closing, and fewer loans formed. These negative outcomes show the danger that rising interest rates pose to the US economy. Nevertheless, jacking up interest rates is the main tool that the Fed uses to ward off high inflation. So, we may have to deal with high interest rates until the inflation issues gets resolved.

Anyways, I hope you enjoyed learning more about the US economy–which is a topic I do not write about often. Thank you again for reading this articles and stay tuned for more fantastic articles on RVIVR in 2023!