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Fed economists paint positive financial picture

Recession concerns are easing for 2023 amid a boost to GDP and solid consumer spending

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Presenting an economic snapshot of local and national data to Springfield business leaders on Aug. 16, economists from the Federal Reserve Bank of St. Louis acknowledged that recession predictions for 2023 were prevalent last year but the landscape has since shifted.

The U.S. economy is showing resilience despite rising interest rates from the Federal Reserve, as gross domestic product grew 2.4% in the second quarter, according to the Commerce Department. Consumer spending was also solid last quarter, according to financial officials, though it slowed to a 1.6% annual rate from a robust 4.2% pace in the year’s first quarter.

“One of the things that really has been striking is just how much stronger GDP growth has been,” said Kathleen Navin, St. Louis Fed senior business economist at the chamber event. “When we were about this time last year heading into the fall, a lot of forecasters – private and various others – were looking for a recession to start, whether it be in late 2022, or early 2023. But as the economic data continues to come in, it’s simply surpassing expectations.”

Nathan Jefferson, an associate economist at the St. Louis Fed, said he mentioned recession concerns at last year’s Economic Outlook. The annual event is organized by the Springfield Business Development Corp., the economic development arm of the Springfield Area Chamber of Commerce.

“We had, going into this year, a lot of concern about what this year would hold,” he said. “By and large, a lot of that concern has been alleviated because consumer demand has been so strong. Now for Springfield, specifically, a lot of that has been services demand.”

U.S. GDP gains have averaged above 2% in the first half of 2023, and while Navin said growth also is expected for the third quarter, the total varies. For example, the Atlanta Fed predicts 5.8% growth in the third quarter, according to updated projections, which is higher than other estimates she’s heard.

“There is definitely a lot of uncertainty right now about how strong the third quarter will be, but those are much more healthy than we would have expected at this time last year,” she said. “I would just emphasize here that things are continually changing, and we’ll monitor that to see if they kind of surprise to the upside or downside. But, as of right now, the expectation for subdued growth is really kind of getting pushed forward into the 2024 time frame.”

The Economic Outlook event held at the Oasis Hotel & Convention Center was attended by 360 people, a dip from last year’s attendance of 425, according to chamber officials.

Another hike?
Navin said inflation remains high relative to the percentage desired by the Fed, but it’s down substantially from last year’s 40-year peak of 9.1%.

“It is starting to come down, and as of June, the year-over-year growth rate was 4.1%. But we want to see that at about 2%,” she said. “That shows that while we are definitely on the right path with moderating inflation back to the objective, we still have a ways to go.”

The Fed raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5% at its July meeting, increasing its benchmark borrowing cost to the highest level since early 2001. Fed Chair Jerome Powell said in July after the Fed’s decision that another rate hike in September is under consideration.

The increase was the 11th time the Fed has raised rates since March 2022.

Tight market
Whether nationally or locally, the labor market remains tight, officials say. While the U.S. unemployment rate is near a 50-year low of 3.5% in July, according to U.S. Bureau of Labor Statistics data, the jobless rates in Missouri – at 3.3% – and the Springfield metropolitan statistical area – at 2.9% – are even lower. Citing data from IHS Markit, Jefferson said the unemployment rates for Missouri and Springfield are projected to finish the year at 2.6% and 2.2%, respectively. Its long-term trend, covering 2022-27, suggests an unemployment rate reaching 3.7% for the state in 2027, while Springfield is forecast at 3%.

Additionally, IHS Markit predicts Missouri’s annual GDP growth of 1.2% for 2027, with Springfield at 1.8%, equivalent to the U.S. rate.

Jefferson noted the data analysis firm also expects five-year population growth in Springfield to be above the national and state trends. Springfield growth by 2027 for ages 25-54 is projected at 2.9%, while the estimated U.S. population increase is 2.5%. Missouri’s population in that age range is projected to dip a tenth of a percentage point.

David Atkisson, Springfield office leader for Kansas City-based J.E. Dunn Construction Group Inc., said after the chamber event that the population projections caught his attention.

“It was interesting about our statewide population projection, which was actually forecast to decrease or at least be flat,” he said. “That is somewhat concerning for our larger cities and what that means for them and the other communities around the state. Since Springfield is on the forecast to rise, what does that mean for us as a larger statewide economy? It was certainly encouraging to see the forecast for us locally.”

Atkisson also said he didn’t currently have any recession concerns, noting J.E. Dunn has lots of construction opportunities on a national scale. One large-scale local project the company is overseeing is a $77 million expansion and renovation project for Citizens Memorial Hospital in Bolivar. The health care system announced the project last year.

“We have continued to see a really strong forecast and opportunities for commercial projects for the next several quarters,” he said.

With low unemployment expected to continue, Jefferson said one of the keys for Springfield’s growth will be to meet employers’ needs to fill jobs.

“The challenge obviously for Springfield is making sure it has the infrastructure and that it has the population needed to meet this long-term demand and supply sustainable for long-term economic development,” he said.

The chamber’s annual series concludes with the Manufacturing Outlook, set for Dec. 6 at White River Conference Center.

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