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Expecting a Soft Landing

April 15, 2022

It is becoming a trend for organizations to forecast a recession coming soon. With elevated inflation and oil prices, does ITR Economics also believe a recession is coming in 2023? Tune into our latest episode of TrendsTalk with ITR President Alan Beaulieu to find out!



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi, I'm Alan Beaulieu from ITR Economics, and this is TrendsTalk. Thanks for joining us today to talk about the future, obviously. That's what we do here at ITR Economics, we like to see the future first.

The other day, I was asked why Deutsche Bank and Goldman Sachs, and perhaps others were forecasting a recession in the relative near term. I have to admit, I did not look to see why they were doing so. But it got me to wondering, of course, what are they seeing that we're not? And are we missing something? And I went back through and checked all the lead indicators and the B to B and B to C and everything going on. I thought, well, it's just not there. At this moment even with inflation the way it is, even with oil prices the way they are, there's no reason to expect more than the soft landing in early 2023 that we've been talking about for quarters now. This has nothing to do with Ukraine, this is not a new forecast based upon Russia's war on Ukraine. It just was a business cycle activity.

Now, one of the main reasons for it, of course, is the consumer. The consumer is in very good shape right now. And when we look at median weekly wages in the United States, this is all occupations, hourly and salaried, everybody's 16 years of age and over it's a weekly wage of $1,010, that's a record high. I mean, that's incredible. And it's going to keep going up, the rate of growth is at 2.6%. It's in phase B, which you know, means accelerating upward and we're going to see wages continue to rise. So even though there is inflation, we are seeing that wages are going up.

Now I know inflation's at 7.9% you're thinking, but we're going to see disinflation real soon. And we're seeing that the inflation is not stopping the consumer from buying. We are seeing a slowing rate of rise in consumer spending, but that's been our forecast for quarters now. So that's not really a worry about the future. When I look at the real disposal personal income, real DPI is well above where we were pre-COVID. It's a nice, solid increase in between there were spikes caused by the government stimulus spending, but when we've come back for reality now, consumers have more money in real dollars. That means adjusted for inflation. So as a key metric, I think that's rather important. Adjusted for inflation opposed to personal income, which is after tax income is more now than it was before COVID. That's certainly good news.

If you're worried about oil prices, well, we're handling oil prices really well too. I know they're high and gasoline price per gallon is high and that makes people nervous. But the reality is we're handling it. Looking at our average spend on median income on gasoline, it's 3.3%. That's a very comfortable number, there's no reason to be worry there. And historically when oil prices have gone up even gone up dramatically, there has been no change in the upward trend line in retail sales, excluding gasoline. So there's no baking in the price of the gasoline. It's we continue to spend, we continue to grow. We continue to complain because that's all right.

The only thing that's slipped a little bit and is noteworthy, I don't want to ignore that piece of news is the household savings rate. The savings rate has slipped the lowest level since 2013. Now we're still saving, it's at 6.3%, but it certainly it has been higher, it's higher than it was back before the great recession but it's also the lowest since 2013. That could be a sign that inflation is certainly having an impact. Should we worry about inflation raising interest rates? Not right now, no. Household debt service payments as a percent of DPI is at 9.2% nice and low, lowest we've seen in decades upon decades. It's just we can handle it, we are handling it. Will the consumer continue to slow? Yes. Remember this began before we started seeing the CPI bump up to these levels before oil prices were bumping up to these levels. This is just part and parcel with what we've been saying here at ITR right along, rate of rise in 2022, going to slow in this rising trend. You're going to slow even more into early 2023. Expect it, be ready for it, but don't let anybody talk you into a recession, because that would require a different set of actions, strategic tactical. You want to make sure that you're just thinking slower rate of rise. So you're ready for the growth that come.

Thank you for joining me. I'm Alan Beaulieu this is ITR TrendsTalk.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.