Is the U.S. economy headed toward a recession? Probably, but any downturn is likely to be brief and mild, especially in Florida.
Tampa law firm GrayRobinson hosted an Oct. 4 event that brought together three prominent economists to discuss the economic outlook for 2023 — and beyond — at both the national and state level.
Held at the University Club in downtown Tampa, the panel featured Raymond James Chief Economist Eugenio Aleman, Florida Chamber Foundation Research Director Dave Sobush and Mike Skordeles, senior U.S. macro strategist at Truist Advisory Services Inc. GrayRobinson shareholder David Hendrix, who also leads the firm’s banking and finance team, moderated the discussion.
Hendrix prefaced his questions for the panelists with an acknowledgment of the devastation wrought by Hurricane Ian in Southwest Florida.
“The 10 counties that are suffering right now are about 11% of our state’s population, and 9% of our state’s gross domestic product,” he says. “It’s a significant amount, when we talk about 10% of our economy being affected by these storms.”
Hendrix also pointed out that the staggering economic losses will “take a backseat” to the human toll. As of Oct. 6, more than 100 storm-related deaths had been reported, and authorities expect that number to rise.
As difficult as it is to see right now, there could be a silver lining to Ian’s wrath, Sobush points out.
“There’s a track record of hurricanes and a storm damage boosting consumer expenditures,” he says. “There were many folks who received non-catastrophic damage to their homes, and so you’ll start to see those [projects] trickle into consumer expenditures. In a perverse way, you sometimes see a positive economic effect from these damages.”
All three experts concurred that while the United States economy is not in a recession, the likelihood of a recession is growing stronger every day. The Federal Reserve, Aleman argues, would likely welcome a recession because it would help ease pressure on wages and bring inflation down. The Fed might even go so far as to “force” a recession.
“They are concerned that because of the pressures in the labor market, wages are growing too fast,” he says. “To keep inflation low, they don’t want to see wages continuously increasing. So that is their biggest concern.”
Sobush points out that the country’s historically low unemployment rate — it’s been hovering around 3.5% — is something the Fed would be willing to “sacrifice” for the greater good of the economy. “They’re comfortable with it getting as high as 5.5% to 6%. A 6% or even 7% unemployment rate is still within historical norms,” he says.
Skordeles believes a recession, if and when it does come, will be nowhere near as devastating as the economic downturn of the late 2000s.
“We are seeing some stresses because of the rapid increase in interest rates by the Federal Reserve,” he says. “But there’s a parallel with what happened with the storm. I was talking with some Central Florida businesses about how bad [Ian] was going to be, and then in the aftermath, how bad it turned out to be. They said, ‘We knew for a week-plus that this was coming, so we prepared for it.’ From an economic perspective, everyone is already preparing for [a recession], so I think that will mitigate things.”
No two recessions are alike, though, Skordeles says, and 2023 won’t be anything close to 2008. If anything, a recession that results from current economic conditions and trends will be short and shallow, particularly in states such as Florida.
“It’s not inevitable, but I think it’s going to be hard to avoid a recession as we move forward,” he says. “But something we say, as economists, is if you’ve seen one recession, you’ve seen one recession. They’re all different. We like to make comparisons, but the factors and facets and characteristics, and the causes, are all different.”
The view from Florida
All three economists at the GrayRobinson event were, to no surprise, bullish on Florida’s prospects in a recession. According to Sobush, with 1.3% annualized GDP growth, the Sunshine State trails only Texas in that category. “Despite some uncertainty about the national economy,” he says, “I can say without a doubt that Florida is not in a recession.”
Returning to his point about how every recession is different, Skordeles says there are “weird facets and characteristics this time around.” For example, the pandemic and subsequent supply-chain shortages have throttled supply at a time of soaring demand driven by low unemployment and rising wages, and Russia’s invasion of Ukraine has pushed up energy prices. Effects of both trends are being felt acutely nationwide, even in Florida.
“I was just in Park City, Utah, a couple of days ago talking to a group of auto dealers about a recession, and they said, ‘If we had cars, we could sell them,’” he says. “In normal times, if you want a car, piece of cake. But you can’t do that today. They don’t have cars.”
Despite supply-and-demand challenges, Skordeles says Florida and Texas are well positioned to “cruise through, maybe dip a little bit, whatever slowdown you have. Meanwhile, back at the ranch, there are large swaths of the country that are going to be impacted — and various industries. Leisure and hospitality, I think it’s going to take an additional hit. Does it take a hit in Florida? Maybe, maybe not.”
Since the start of the pandemic, Sobush adds, Florida has seen a net gain of 400,000 jobs.
“We’ve seen every single industry and sector return to pre-pandemic employment, with the exception of leisure and hospitality,” he says. “Many of those folks have said, ‘We were the first to be put out on the street, so I’m going to find something else to do now.’ But because of supply and demand, the pressure for hotels and restaurants to find workers has resulted in wage gains.”
New realities and lessons learned
Aleman, Skordeles and Sobush also highlighted the many ways, big and small, the post-pandemic, pre-recession economy has changed the way companies do business. Some of those changes could be here to stay.
“It’s resulted in different patterns of service,” Sobush says, citing the above-mentioned hospitality industry’s worker shortage. “It used to be, your towels would be changed every day in a hotel. And then it slowly turned into, ‘Ask us if you would like fresh towels.’ And now it’s, ‘We’re coming in every five days. So, if you’re not here for five days, and you really want some towels, dial this number between 3 and 3:10 p.m.”
He’s being facetious, of course, but that example contains more than a kernel of truth, and it speaks to the way businesses can, with proper planning, communication and execution, make smart changes in the face of fast-changing economic conditions.
Another area companies can review and potentially improve, the economists say, is inventory management.
“We’ve had roughly 50-60 years of business managerial training that says, ‘Keep as little inventory as possible,’” Sobush says, “and a good manager was one who didn’t need a warehouse. We’ve perfected the system of just-in-time [inventory]. The order comes in, we ship it off to the consumer. I think you’ll see that change a little bit. And I think you’ll see a slight shift back to brick-and-mortar retail with higher inventories as a result of all of this.”