Despite recent quarterly declines in GDP, the U.S. is not currently in recession. Wells Fargo vice president and chief economist Charlie Dougherty said this week in a speech to packed retailers and manufacturers at the National Marketing Group’s Prime Time event. Dougherty pointed to a number of compensating factors that he believes undercut the term “recession” in the current economic environment, including continued high job growth and still rising inflation.

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“Families have gotten a lot more money in recent years, and people have been able to save a lot of it,” Dougherty said. “Plus, there’s a lot of equity in the market right now because of rising house prices. All that cash is still in the economy.”

The difference, especially for the furniture industry, is that much of that spending has shifted from home to services in recent months. “I would characterize this as normalization,” he said. “We’re going back to 2019.”

However, inflation remains a challenge, which Dougherty described as “the biggest problem holding the economy back.”

He noted that what started in the durable goods sector, driven by exploding freight rates and a dramatic imbalance between supply and demand, spread throughout the economy. The Federal Reserve has “stepped on the brakes,” Dougherty said, expecting at least one or two or three rate hikes in the coming months in an effort to rein in inflation.

“We expect interest rates to continue to rise until inflation comes down to two to three percent,” Dougherty said. “Now it’s 8%.”

The effect is likely to taper off in early 2023, although he suggested it would be relatively mild and short-lived and interest rates would start to fall again in six to eight months. Another factor he believes in, especially for home furnishings, is the housing market.

Dougherty acknowledged the recent downturn in the housing market, but pointed out that it comes after record activity. Additionally, he pointed to the historically high number of consumers in the 25-35 age group, noting that this demographic cohort is entering its peak family-building years.

“Population is a fundamental driver of the housing market and the outlook is very positive,” he said, adding that the sector could enjoy five years of strong activity.

Overall, he noted, things are getting better “but it’s going to be a messy situation going forward.”

Source: furnituretoday.com