Regional economic outlook: Mild to moderate recession possible in 2023, local experts say

Local experts differ in how certain they are of a recession occurring but if one happens they anticipate it will not be anything like the Pandemic Recession of 2020 or the Great Recession of 2007-2009.

“I expect the Miami Valley to experience a mild recession in the latter half of 2023. PNC economists are forecasting a mild recession in the U.S., with a peak-to-trough decline in real Gross Domestic Product of around 1%, starting around the second quarter of this year,” said David Melin, PNC regional president for Dayton.

“Elevated interest rates and high inflation will weigh on consumer spending and industrial production will decline,” he added. “Total manufacturing output will likely slow in Dayton this year as businesses continue to struggle with labor shortages and consumers pull back on goods expenditures.”

We asked a dozen local experts from the business, financial, government, development and real estate sectors their view of the 2023 economic outlook for the Dayton, Springfield and Butler County regions in southwest Ohio.

In this four-part series that began publishing Sunday and runs through Wednesday, the experts discuss the overall view of the region’s prospects, how the region can leverage its strengths, the possibility of an economic recession, the impact of inflation and higher interest rates and how the region is coping with labor shortages and workforce training issues.

ExploreSEE PART ONE of this series: Dayton region economic outlook for 2023 is positive though tinged with recession worries

In addition to Melin, those interviewed included Ben Ayers, senior economist for Nationwide Insurance in Columbus; Greg Blatt, president of Dayton Realtors and a realtor at Keller Williams Advisors Realty; Jim Bowman, owner and CEO of Noble Tool LLC of Dayton; Montgomery County Administrator Michael Colbert; Crystal L. Corbin, executive director of the Montgomery County Transportation Improvement District; Dave Dickerson, partner and president of Midwest market at Miller Valentine Construction of Dayton; Butler County Commissioner Don Dixon; Tom Franzen, Springfield assistant city manager and director of economic development; Springfield City Manager Bryan Heck; Chris Kershner, president and CEO of the Dayton Area Chamber of Commerce; and Julie Sullivan, executive vice president of regional development at the Dayton Development Coalition.

Ayers expects a “moderate” recession that is neither prolonged nor deep taking hold in mid- to late-2023. He believes the unemployment rate could rise to about 5% by early 2024.

The unemployment rate in Ohio was 3.3% in November, lower than the 3.6% rates in the Dayton and Springfield metropolitan areas, according to preliminary, non-seasonally adjusted data from the U.S. Bureau of Labor Statistics. The rate in the Cincinnati metro area, which includes Butler County, was 3.3%.

ExploreSEE PART THREE of this series: Local residents and businesses will still feel sting of inflation and higher interest rates in 2023

The number of non-farm employees in Ohio rose by 2% in November year-over-year, but growth was lower in all of the Dayton region metro areas. Employment in Dayton and Springfield rose 0.8% and in Cincinnati 1.2%, according to non-seasonally adjusted preliminary data from the BLS.

Metro area data for December is scheduled for release Feb. 1, but nationwide data is already available. Nationally non-farm employment increased in December by 223,000 month-over-month to a total of 153.7 million, and the U.S. unemployment rate declined to a seasonally adjusted 3.5%, according to the BLS.

Ayers said the low jobless rate has been coupled with strong wage and job gains.

“Many consumers are still feeling pretty good about their financial situation,” he said.

Average hourly earnings in the U.S. rose 4.6% year-over-year in December, although paychecks were eroded by a 6.5% annual increase in the Consumer Price Index, according to the BLS. It was the smallest 12-month increase since the period ending Oct. 2021, a sign that inflation is continuing to moderate.

Inflation began rising in 2021 amid COVID-19 pandemic economic disruptions, including tangled supply chains and labor shortages that made it hard for companies to keep up with the demand from consumers buying goods and services. Oil prices also rose and then spiked after Russia invaded Ukraine in February.

ExploreFive things to know about the Consumer Price Index

The U.S. Federal Reserve took aim against inflation in March, repeatedly raising the federal funds rate, making it more expensive to borrow money. The goal was to bring prices down by slowing the red-hot economy, which was adding jobs at a torrid pace and finally in July recovered the nearly 22 million jobs lost at the outset of the pandemic.

That slowing of the economy is where recession fears come in.

Ayers said steadily rising interest rates will eventually take their toll, forcing businesses to cut hiring and investments.

“We don’t think the Fed is done,” he said. “While the Fed probably has done most of the moves they’re going to do, we think they’re going to go higher with rates.”

Supply chain problems have largely diminished or worked themselves out, so the Fed is left trying to slow aggregate demand, Nationwide Chief Economist Kathy Bostjancic said in a podcast in late December.

ExploreSEE PART FOUR of this series: Regional Economic Outlook: Attracting and keeping skilled workers remains top issue for Dayton region in 2023

“We will see some fading of demand and those job openings will come down,” Ayers said.

Ohio’s health care, manufacturing and retail sectors are sensitive to the business cycle and cutbacks so Ayers believes Ohio’s recession could be somewhat deeper than what the nation sees.

“We could be in for a little bit of a bumpier road,” he said.

Credit: DANIEL CLEARY CREATIVE PHOTOGRAPHY

Credit: DANIEL CLEARY CREATIVE PHOTOGRAPHY

Blatt takes a more optimistic view.

“While there are hints of economic recession looming nationwide, I believe the Dayton region is well positioned to weather whatever economic storm we may see,” Blatt said.

After decreasing in the first two quarters of 2022, third quarter Gross Domestic Product, which is the value of all goods and services produced in the U.S., increased 2.3% year-over-year, according to the U.S. Bureau of Economic Analysis.

“There is a cloud of recession that’s hanging over the national market and the regional market as well,” Dickerson said. “A lot of people are just trying to figure that out because quite frankly, the market itself and businesses have been operating pretty well. Our business, for example, we had a record year this past year. And we had a record year in 2021.”

Colbert said if there is a recession he anticipates it will be a “jobs recession” with plenty of work available.

“There are ample employment opportunities and the best advice I can give the people in this region is to find work, and if you have trouble finding a job, we have an entire workforce team that is prepared to direct you to training if needed, can help you create a resume, practice your interview skills, and just assist you in finding a career in this community,” Colbert said.

Credit: HUE12, LLC

Credit: HUE12, LLC

Dickerson said companies are reluctant to lay off workers in a tight labor market, especially after so many companies had a hard time finding employees as the economy recovered and job opportunities were plentiful.

“I think a lot of companies are looking beyond the recession in 2023 in their planning process,” Dickerson said. “Because a lot of the information that we’re looking at (indicates) 2023 and 2024 may be a slow period of time, but 2025 we will be picking back up.”

ExplorePHOTOS 2023 developments: ‘flying car’ test facility, Spooky Nook, factories, warehouses, apartments in Dayton region


See our four-part 2023 economic outlook series

Part 1 - The region’s general economic outlook

Part 2 - The possibility of a recession and its impact

Part 3 - The effect of inflation and higher interest rates

Part 4 - Labor shortages and workforce issues

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