Recession imminent, but soft landing expected

Never in history have the short-term, mid-term and long-term economic outlooks differed so much. 

So said Linda Duessel, senior economic strategist for Pittsburgh-based Federated Hermes, an investment management company, to a crowd of about 150 York business leaders at the 2023 York Economic Forum sponsored by PeopesBank at the Yorktowne Hotel Wednesday. 

“We are in unprecedented times, and we will have to go through a recession,” she said. However, “I believe all will be well in the long run.” 

Duessel said the reason for the differing outlooks is that the markets are moving fast. 

The crosscurrents the country is seeing right now include inflation that hasn’t been seen since the 1970s, the S&P 500 with a wait and see what the Federal Reserve will do, and the concern about the banking system.  

“This year is going to be volatile,” she said. “We could see swings decrease if inflation is brought under control.” 

Duessel said the stock market forecasting mechanism is saying all will be well and good soon. “We need to be patient. The markets move quickly,” she said. 

In fact, she said she believes the S&P will finish the year above 4,000 but “it will be a volatile ride” throughout the year. 

In other areas, Duessel said there will be a mild recession on earnings this year but thinks the gross domestic product (GDP) will grow steadily. 

A positive, she said, is “the job market is as strong as it was in the 1970s. Consumers have money.”  

From 1971 to now, earnings are at near record highs and companies are profitable due to advances in technology, which has helped them overcome some of the labor shortage issues. 

“Robots get no pay and don’t take vacation,” she quipped to the audience. “Automation is definitely helping with the labor shortage.” 

Corporate debt is manageable with many companies seeing near record balance sheets.  

She explained that since the housing bubble of 2007 to 2009, no one bought big. In the ten years following the recovery, corporations “hoarded” cash. That coupled with the last 13 years where the Fed held the rate at zero, corporations took advantage and borrowed money.  

“Now they have cash in hand and debt at a low fixed rate. Corporate America is in good shape which gives the country time to to get through this pickle we are in now.” 

Duessel said during COVID, money was “printed”, which she said she doesn’t think was done well, so with inflation being at a level not seen since the 1970’s, people under 55 have never experienced anything like this. 

Housing, she said, has been affordable since 2015 with historically low rates that, all of a sudden in 2022, disappeared. 

Duessel was referring to the millennials who are ready to buy their first home, which, she said, unfortunately is not affordable. Not only that, but the vacancy rate is at a four-decade low. 

“There are 90 million millennials. That’s a lot of people who need to live somewhere but there is no stock. I don’t see prices coming down with the number that need homes,” she said.