Which Way Is The Economy Going in 2023?

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It was the best of times, it was the worst of times.

Charles Dickens used this phrase to describe 18th century London in the opening to A Tale of Two Cities, but it could easily be used to describe today’s economy. Depending on who you ask, we are all going to be fine, or we could be sleepwalking into a massive recession the likes of which we have never seen before.

Predicting the future direction of the economy has never been an exact science, but I’ve never seen a year like 2022.

Remember in January, when the big debate on Wall Street was the size and scope of the inevitable “recovery rally” that would happen as world economies opened back up? Borders were reopening, airlines were starting to fly again, and we were excitedly awaiting the start of our generation’s own version of the Roaring 20’s. We had so much hope for the future.

Then supply chain issues got in the way. Then inflation. And then, oh yeah, Vladamir Putin invaded Ukraine for no good reason, sparking the largest armed conflict and humanitarian crisis on the European continent since 1939.

Well, 2022, nobody can ever accuse you of being boring.

So now we have multiple major geopolitical and economic events happening. Some are good (like the return of open borders) and some are really bad (like the war in Ukraine). What’s interesting about this year is that all these events are happening at the same time, and as a result the normal economic indicators we use to figure out the future direction of the economy are all confused and pointing in different directions.

What indicators, you ask? Well…

The Stock Market

So when are the Roaring 20’s supposed to start again?

Instead of 2022 delivering what was supposed to be a massive relief rally as COVID-19 slid into our collective rear view mirrors, this year’s global stock market performance can best be described as a shit sandwich (I believe that’s the technical term).

As of the time of this writing, the US stock markets are down 20%. International markets are not much better, down 18% YTD. Both markets have entered bear market territory this year.

To say that markets have been a bit pessimistic lately would be a massive understatement. I guess war and the threat of thermonuclear annihilation tends to do that.

Interestingly, the big outlier this year has been Canada’s stock market, down “only” 8%. While the Canadian economy has felt the same downward pressure as everyone else, the fact that our stock market is heavily oil dependent turned out to be a big advantage as our energy sector saw record profits as Canada furiously sold oil into the world’s Russia-sized supply hole.

But that was then. Now that we’re at the end of the year, we can see that the war in Ukraine hasn’t escalated into a WWIII-style conflict (if anything, the Ukrainians have been absolutely humiliating the Russian army all year). Thermonuclear threats haven’t materialized into anything, and even in the US, the surprisingly good performance of the Democrats during the midterm elections has shown that the world’s most important democracy is still capable of defending itself from autocrats both in and out of the country.

In other words, none of these completely rational fears ended up coming to pass. So while all this was terrible news for the stock market in 2022, the fact that we’re all still here is actually pretty good news, and could be setting us up for stock markets to stage a big recovery in 2023.

Unless Putin decides to invade Estonia or something. Then all bets are off.


On the economic front, the biggest story of the year was inflation.

I think we generally understood that the massive money printing world governments did during the pandemic wouldn’t come for free, but I don’t think any of us were expecting inflation to rear its head in 2022. Or at least, not with the speed and ferocity that it hit us with.

It was the war in Ukraine that really screwed everyone. We already had enough problems trying to stick the landing on all this COVID stimulus stuff without crashing the economy, and then Putin had to go start a war that prompted a flurry of NATO sanctions meant to cripple their economy. Gas prices were caught in the crossfire.

2022 was the year we all learned (or re-learned) how important stable gas prices are to the global economy. Food production, manufacturing, transportation, and even pharmaceuticals are all heavily dependent on oil, and when oil prices shoot up for whatever reason, virtually everything gets more expensive really fast.

We also learned how freaking hard it is to fight inflation. Millennials came of age during an extended period of low inflation and rock-bottom interest rates. Those days, apparently, are so over.

2022 has seen the sharpest rise in interest rates ever. In this year alone, central banks in the US and Canada have raised interest rates from 0.25% to 4.25%, a nose-bleed increase of 1600%!

The fallout of that has been profound, with the most obvious impact on mortgage rates. Last year, people were picking up mortgages at interest rates less than 2%. Now, you can’t get a mortgage under 5%, with more upside pressure coming down the pipe.

So that all sounds pretty bad, right? That’s got to be a clear negative drag on the economy.

And it would be…but it’s working.

On a year-over-year basis, inflation hit 7.1%, a slowdown from the 7.7% in October and lower than the 7.3% expected by analysts.

Inflation slows to 7.1% for November, another sign the economy is cooling off, NBC News

Now, that might not seem that impressive, but you have to remember that the inflation numbers reported by the media are almost always year-over-year. In other words, that’s a comparison of prices between now and November 2021. Back then, we were learning about our new least favourite Greek letter Omicron, and economies around the world were shutting back down. So of course any comparison to that period will look awful.

It’s actually more interesting to look at month-to-month inflation readings, because that gives us a clearer picture of the near-term impact of these interest rate increases. In October, prices rose month-to-month by 0.4%, or 5% annualized. But in November, prices rose month-to-month by only 0.1%, or an annualized 1.2%.

That’s actually below the central bank’s target of 2%. If inflation stays right where it is now, then their job is done.

You can already see the impact in your day-to-day life most obviously by looking at gas prices. Remember when gasoline was $5 a gallon and everybody was freaking out every time they went to the pump?

A gallon of regular gas now sells for an average of $3.18, according to AAAThat marks a decline of 14 cents in the past week and 56 cents in the past month.

Gas prices tumble to 15-month low, CNN

For all the panic at the beginning of the year over the impact of Russian sanctions, things seem to have calmed down nicely. Whatever decrease in oil supply that was caused by the Russian sanctions seem to have offset by an increasing supply from other oil-producing countries, Biden’s decision to release oil from the strategic petroleum reserve onto the open market, and an accelerated effort to bring more renewable energy sources online.

Remember that high oil prices was the reason that inflation rose so quickly to begin with. Now with gas prices approaching pre-pandemic levels, it looks like inflation will soon be in the rear view mirror as well.

The Jobs Market

However, the most confusing economic story of 2022 is what’s been happening in the job market.

Normally, when the stock market enters a bear market, the job market follows soon afterwards as companies trim payrolls in anticipation of a recession. But not this time.

The US economy added 263,000 jobs in November, defying aggressive action from the Federal Reserve to cool the economy and bring down decades-high inflation.

US economy added a robust 263,000 jobs in November, CNN

The baffling direction of the job market has been the one big vanguard against a full-fledged recession, and last month as big layoffs were announced at big tech companies like Amazon and Twitter, we all thought that the other shoe was about to drop.

Nope! Instead, many of the tech workers that were laid off got scooped up by other industries that were continuing to grow, most notably leisure, travel, and hospitality. These sectors are still recovering from the impacts of the pandemic, and the gains in those industries have more than offset the losses in tech.

Even as the tech sector has been hammered by mass layoffs this year — more than 140,000 workers since March, by one count — the vast majority who have been let go haven’t remained on the sidelines for long. According to an analysis of laid-off workers conducted by Revelio Labs, a workforce-data provider, 72% have found new jobs within three months. Even more surprising, a little over half of them have landed roles that actually pay more than what they were earning in the jobs they lost.

The hidden upside of tech layoffs, BusinessInsider

All of this is adding up to a rip-roaring job market and an unemployment rate hovering around 3.7% in the US, and 5.1% in Canada. Both figures are pretty much where unemployment stood before the pandemic.

This is great news. A recession’s main negative effect on people’s day-to-day lives is not in the stock market, or in abstract GDP numbers, but in employment. If we end up in a recession but the job market remains strong, then it hurts far less.

What’s In Store for 2023

Add it all together and you see the dilemma facing economists right now. Some indicators are pointing up, some are pointing down, and as a result nobody can agree on what 2023’s going to be like.

Here’s my hot take, for what it’s worth.

Inflation is cooling off nicely, and will continue to be brought under control next year. Rising interest rates will continue to cool people’s insane debt-fueled spending (looking at you, housing market) while the impact of pre-pandemic gas prices will continue to work its way through the supply chain and start to bring down prices of everything from lettuce to jeans.

The job market will continue adding jobs, especially in the sectors most impacted by the pandemic. Anyone who’s stepped foot in an airport lately knows that there’s a lot of hiring that still needs to be done in the travel and hospitality sector. We may continue seeing localized pain in tech, but now that practically every industry out there runs on computers, there will be plenty of places for those laid off tech workers to migrate to.

We will, in all honesty, probably enter a mild recession in 2023, as defined by 2 consecutive quarters of negative GDP growth. However, I don’t think we’ll see the mass unemployment that’s a signature of every other recession in history. And because of that, I don’t think we’ll see the mass defaults and the housing armageddon that we saw in 2008 either.

So my overall prediction is that 2023 will be the year of the RINO – Recession In Name Only.


So those are my calls for 2023.

What do you think? Do you think we’re sleepwalking into financial disaster, or do you think we’re going to be all right? Let’s hear it in the comments below!

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26 thoughts on “Which Way Is The Economy Going in 2023?”

  1. I’ll leave the prognosticating to everyone else. We’re still in the accumulation phase, with stable jobs and a fairly LCOL and family even more successful than we are. The best we can do is keep throwing money at VTI, tipping heavily, and supporting causes that our less-charitable countrymen try to defund and/or criminalize.

  2. I really like the call and analysis that was done here. It’s as good a guess as someone can make, but as we all know, predicting the economy months out is about the same as predicting the weather months out. Tough to do and requires more luck than skill to be correct. We’ve already had one RINO this year, with 2 consecutive negative quarters and perhaps next year brings another. It would be very weird to have a recession but everyone who wants a job has one. To me, that’s not really a recession but it would show how resilient our economy has become.

  3. I believe there’s going to be another shake up in March when raises and bonuses are paid out in the normal review cycle. Unless companies account for inflation in their review cycle turn over will be huge!

    I’ll be waiting with popcorn in April/May to see which companies cheaped out and lost their talent pools.

    1. Perhaps the approach many companies will take is not to cheapen out so much on bonuses, but do so on merit/salary increases, and not reflecting YoY inflation. Bonuses are not necessarily recurring while salary increases are…

  4. Some indicators are pointing up, some are pointing down, and as a result nobody
    can agree on what 2023’s going to be like.


    Well, considering all the indicators were pointing south for most of the year. That’s a huge improvement. No? You have to believe that we have turned the corner.

    I predict 2023 will roar back.

    Stock markets will surge 15-30%.

  5. Regarding the employment situation, I’m wondering how much of this is driven by the reports of millions of “prime working age” people bailing out of the workforce (especially men). Basically I’m wondering if low unemployment is due to the masses leaving the workforce, never to return. These people aren’t counted in the employment numbers.

    Take me, for example: Firstly, there’s nothing special about me, but I’m a “prime working age” person who retired early from a technology career (engineering, electronics/firmware). In addition, within my social circle (a small circle), I know of four other “prime working age” men who are not working and will never work a day in their lives. These four others are the stereotypical 30-ish men living in their parents basement watching porn and playing video games all day. So, I’m personally aware of five people, whom for various reasons, will never be in the workforce. Multiply this across the US and the world, and that’s a hell of a lot of people not working nor desiring to work.

    ..anyhow, regarding the 2023 economy.. I think it will be fine. I’m staying invested.

      1. point conceded…

        For the record, the 30-ish non-working men I mentioned…..those guys aren’t my friends. They’re actually “kids” of some of my friends, and none of these people are related to me.

        1. Thank you Bill, I think this is a great observation. I’m another like you and your friends. I’m a 38 year old white man, a medical doctor. In June 2020 my old fart boomer boss was yelling at me that I was sitting on my ass being paid for doing nothing when I was doing remote work from home on most days, rather than being in the office in person. In fact, I spent part of my time at home finishing out his uncompleted cases electronically, because he didn’t know how to use the electronic medical record system. So I quit my job halfway through 2020 and took nearly two years off (I had come to hate much more about my work than just this anecdote).

          Recently I found a new job in a much different field. It makes a lot less money. If I hadn’t found it, which was very unusual, I would still be unemployed. I would be unemployed by choice rather than ever return to my old kind of work. If the boomers in ‘power’ want to force people like me back to work, they will have to lay waste to the economy such that it can’t nail together two wood boards anymore. After the meltdown, they themselves might only be able to afford lobster one night per week, or only a second beach home rather than five.

          How many other people are like us? How many other skilled and educated people are not contributing in the conventional ways, because the old work environments were so full of horrors and abuses that they became unbearable?

  6. “Biden’s decision to release oil from the strategic petroleum reserve”

    He released about 120 million barrels which is about 2 weeks worth of oil the US uses.

    I don’t think that would effect oil prices that much. I’ve learned to always check primary sources of information and never believe what media / CNN’s narrative driven agenda states.

  7. I think since headlines grab attention, any analyst or “financial guru” who thinks a huge crash is coming will have their 10 seconds of fame.

    That being said, I agree with the debt-filled boom of the last decade. There are many concerning factors out there like 10 year auto loans with payments over $1k per month, people spending 60% of their income on their mortgage, and companies moving more jobs overseas or to automation.

    I actually hope there is a good reset next year to bring easy money down to Earth, and let millennials finally enter the real estate market! Plus, everyone can keep buying stocks on sale.

  8. I personally think that we are going to have a stagnant period which is going to take 18months to 2 years to come out of. The entire world shut down for 2 years and came out of it straight into turmoil and unrest. It will take sometime for everything to calm down unless something else tips the delicate balance. Either way it would be a good test for our retirement portfolios to see if it can stand the stress.

  9. Will you all seen pretty optimistic, which I’m all for!
    I would like nothing more than to go back to normal boring year.

    But you can count out this Putin guy just yet, until the war is done in Ukraine or Putin has moved on to other things. We will continue to walk a fine line and the year of 2022 of continuous ups and downs of the market will continue to go on.
    There will be no end until this war is over!

  10. For me, the biggest surprise of 2022 was not inflation – it was obvious it was coming. The biggest surprise was rather the sharp rise in interest rates by the Fed and other central banks. I didn’t expected they would have had the courage to do it. And this was the sharpest interest rate increase in the history of the Fed since its inception in 1913.

    This is the main reason why markets are down this year, not inflation. In fact, if you look at inflation benefiting stocks, many of them are positive. Here are a few example : Suncor (+32%), Coca-Cola (+9%), Hershey (+23%) and Campbell Soup (+34%).

    Even gold is down only -2%, dragged down only by higher interest rates.

    If you know economics, you also know that inflation and conflicts go hand-and-hand. Although I didn’t knew there would be a war between Ukraine and Russia, I knew that inflation favorize conflicts in general. This is because resources become more valuable, and nobody wants to starve or freeze. As inflation decrease the general level of wealth, people eventually fight over scarcer goods. Exactly what happened in Russia and Ukraine.

    That being said, my prediction for 2023 will be dependant on the level of interest rates set by central banks. If they continue their plan as is – ie. keeping interest rates above 4-5% for the entire year – I expect there will be a recession with a lot of companies’ bankruptcies.

    Personally, I estimate the quantity of zombie companies to be around 20% (companies that can only survive with very low cost of borrowing). Many of them will disappear in 2023. This include companies like WeWork, Carvana, Opendoor, Robinhood. I think there is a lot of private equity that will default, including in real estate. But I don’t expect many foreclosure in housing – I think individuals in general have pretty good financials overall.

    My expectation is that the recession will get so bad during 2023 that central bank will eventually back off and lower interest rates again, although this may happen only in 2024. If this happen in 2023, this would push assets value higher by the end of the year.

    So, my prediction for the S&P 500 for 2023 is that we will have another very difficult year for stocks. But it will not be as bad as 2022 and we may even finish the year higher +5% or 10%.

    I think bonds will do well relatively well in 2023. Although they may not beat inflation if inflation stays above 4-5%.

  11. Interest rates near zero makes the stock market and other asset markets bubbly. Bubbles can grow for a long time but when they pop, it’s sudden. Considering the long run of zeroish interest, this year’s drop has been mild. The bubble’s consequences remain.

    Don’t be surprised if assets (equities and real estate) drop even further in 2023. We’re still fragile. What happens if a high proportion of loans go underwater or default because those cars and houses bought overpriced in the last 2-3 years are now worth less than the principal?

    With all that said, it may still turn out that the market does well next year because who ever knows? I’m staying invested.

  12. “…2023 will be the year of the RINO…” is a healthy mindset if you are financially stable!

    Otherwise, do not commit to anything greater than 15% of your after tax income.

    Have a wonderful holiday everyone!

  13. Personally I think we’re seeing some of the K-shaped recovery that was talked about during the pandemic.

    Big companies are making profits and low-level workers are getting whacked by inflation. Combine that with the abuse that customer-facing jobs endured for two years during the pandemic and you’ve got people who are fed up. That’s where your worker shortage is coming from. Nothing solves a worker “shortage” like paying wages that the market demands.

    Nowhere is this more true than in the airlines. Wages have slipped backwards in real buying power, working conditions have deteriorated due to frustrated customers and shorthanded work rosters, and the memory of having been laid off at the drop of a hat during the pandemic is still fresh in everyone’s minds. The airlines are doing everything they can not to increase wages or any other spending so that they can recover the lost profits from 2020-2021. At some point something is going to break, and I think that “something” is employees voting with their ass and heading towards greener pastures.

    I think executives are cringing at the idea that supply and demand works both ways and will be trying hard to avoid giving up profits to their employees. It has already started with pilot contract negotiations going on, and non-pilots might be shocked at just how poorly some of these positions have been paid. We may be in for some turbulence.

  14. I think we are underestimating how many people will be devastated by these high interest rates. So many Canadians have variable rate mortgages and HELOCs, and have been using them to finance lifestyles they really cannot afford. Or, for down payments on even more overpriced real estate. Four percent on a few hundred thousand dollars? Totally unmanagable. They will be hitting the stress test levels, while their home values are going down. After a few months many will begin to default, and the rest will be paying much more each month unless rates go down. I hope I’m wrong, but our Canadian banks will be severely challenged by this.

  15. I think we are underestimating how many people will be devastated by these high interest rates.

    So many Canadians have variable rate mortgages and HELOCs, and have been using them to finance lifestyles they really cannot afford. Or, for down payments on even more overpriced real estate. Four percent on a few hundred thousand dollars? Totally unmanagable. They will be hitting the stress test levels, while their home values are going down. After a few months many will begin to default, and the rest will be paying much more each month unless rates go down.

    I hope I’m wrong, but even our well managed Canadian banks would be severely challenged by this. The losses could be massive.

  16. I don’t know what 2023 will be like, however the war in Ukraine did not create inflation, it was already there, it “only” accentuated the phenomenon

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  18. I think 2023 is a flat year with maybe a positive bias. I agree with a lot of the people here. We have a mix of good and bad in 2023. We dont have variable rate interest issue here in the US so we should be relatively safe. Inflation seems to be slowing MoM and well ran profitable companies are still doing very well.

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