Kavan Choksi Professional Investor Talks About the State of the US Economy in 2023

Talks about recession in the United States were in the air in 2023. However, while inflation has moderated in 2023, no recession has occurred. Kavan Choksi Professional Investor says, even though the economy is slowing to an extent, the GDP still appears to be growing faster than its long-run potential. Moreover, even though job growth has slowed, the economy continues to add jobs at rates much greater than the underlying growth of the labor force.

Kavan Choksi Professional Investor sheds light into the state of the US economy in 2023

The strategy pursued by the Federal Open Market Committee (FOMC) to return inflation to its 2% target rate while avoiding triggering a recession and widespread layoffs has been paying dividends. In the June of 2023, PCEPI or the personal consumption expenditures price index was up 3% from a year earlier. On the other hand, in July the consumer price index (CPI) was up 3.3% from a year earlier. Such levels were much lower than the peak rates of 7% and 8.9%, respectively that took place in June 2022. The marked deceleration in headline inflation has occurred against the backdrop of continued strength in labor markets.

Lower energy and food prices have been important in lowering headline inflation. Over the 12 months ending in 2023 June, refiners’ acquisition cost of crude oil has gone down from $114 per barrel to around $71 per barrel. However, the price of crude oil, as well as refined products like diesel and gasoline has rebounded recently. The pace of food price increases in the CPI has also slowed to an extent, but food prices remained about 5% above year-earlier levels in July 2023, which was a little less than half the peak year-over-year increase registered in August 2022.

Core indexes imply to the price indexes that strip out food and energy. Over the period of 12 months ending in July 2023, the core CPI went up by 4.7%. On the other hand, the core PCEPI increased by 4.1% over the 12 months ending in June.  The 2% inflation target of the FOMC is based on the headline inflation rate. Certain FOMC participants, however, do pay close attention to the core inflation rate as they consider it to be a better predictor of future headline inflation.

At the start of 2023, a short, mild recession was the baseline forecast for many economists, which included staff at the Federal Reserve Board of Governors. However, the situation became pretty unlikely with July unemployment being under 3.5%, job growth averaging more than 217,000 over the three months ending in July 2023, and real GDP growth exceeding its estimated potential rate for four consecutive quarters. As Kavan Choksi Professional Investor further underlines,  even though the tightening in bank lending has not choked off the expansion, business loan demand has remained weak in the months following March’s bank failures. Consumer spending nonetheless has managed to weather the surge in interest rates to a good extent yet, as demonstrated by a sharp 0.6% increase in real consumer spending in July.

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