The economy is sending mixed signals right now.
Inflation reached a four-decade high in May, 8.6%, but there’s solid job growth.
Interest rates are rising, but doesn’t appear to have affected consumer spending much, even though it was down slightly in May, the most current month data are available. And while it has remained a bright spot in the economy along with low unemployment, economists say it could change quickly and signal a recession.
Some see inflation as a sign a recession is looming toward the end of the year and into 2023. Others say we’re entering a boom-and-bust cycle in Oregon, according to a forecast post by Josh Lehner, Oregon Office of Economic Analysis economist.
Inflation likely will drop to about 5% by the end of the year and interest rates will continue to rise as the Federal Reserve raises rates more aggressively, Lehner wrote in his forecast. Any recession will be mild or moderate, Lehner said. For Oregon, that could mean 100,000 jobs lost and an unemployment rate of 9%, according to the projection.
The economy will improve by early 2025, according to Lehner’s projections.
“The future is hard to predict,” said Jeffrey Reimer, Oregon State University professor in the Department of Applied Economics. “It is possible a recession could come this year or in 2023, but it would require a reversal of some current trends. A recession would mean a massive slowdown in consumer spending, declining consumer demand and prices and a reversal of the strong labor market.”
A recession generally occurs when people keep their wallets shut and there is significant job loss for two consecutive quarters. Economists are keeping a keen eye on these indicators. The Federal Reserve has been working to slow spending by raising interest rates, which makes borrowing more expensive.
“The Federal Reserve has signaled strongly that it intends to quash inflation down to an acceptable level, generally about 2%,” Reimer said. “The Federal Reserve is raising interest rates to make borrowing more expensive and that reduces consumer demand for goods and services, which should lower their prices.”
Unemployment rates in Deschutes County returned to pre-pandemic rate in May, to 3.4%, a fraction above what it was in February 2020, prior to the pandemic. Companies are still offering incentives to workers in the form of signing bonuses, gas gift cards and higher wages.
The average salary in the Bend-Redmond area was $25.39 an hour, according to the U.S. Bureau of Labor Statistics report. That wage is is 6% below the national average of $27.07 an hour.
But as long as there’s job growth and not job cuts, there shouldn’t be a recession, said Tim Duy, University of Oregon economics professor and senior director of the Oregon Economic Forum.
“The Fed’s goal is to have a soft landing,” Duy said. “The Fed hopes to do a slow down in growth by raising interest rates that doesn’t have widespread job losses.”
That would mean a gentle increase in job losses by moving the unemployment rate up slowly, Duy said. Even with the record inflation, consumers are still spending, but are just more selective on their spending, he said.
“The inflation is a factor. It’s the fallout from the fast recovery we underwent from the pandemic recession,” Lehner said. “Everyone is back to work and wages are going up and that’s all driving inflation.”