Happy New Year! The burning question for 2023 is whether the U.S. economy will fall into recession.
A robust 2022 labor market has been a major factor in staving off recession culminating with a low unemployment rate of 3.5% in December. The number of people in the U.S. labor force surpassed pre-pandemic levels despite lower participation rates, indicating fewer job seekers. This can be explained in part by the increase in retirement of employees due generally to an aging population choosing to retire from the workforce during Covid.
Over the past year, with higher demand for labor, easing of health concerns of the pandemic, financial pressure from inflation and 2022 financial markets experiencing their worst performance in 15 years, people are re-entering the labor force and the “unretirement” rate is on the rise.
Individuals are returning to the work force in two forms; as employees, and as business owners, as new businesses continue to open at a rapid pace. New businesses continue to account for a growing portion of commercial trades with small businesses (under 10 employees) accounting for over 80% of new commercial credit account originations.
New small businesses still require capital to operate however with inflation, high interest rates and decreases in consumer (sole proprietor) and commercial credit scores, average loan amounts are decreasing, driving commercial credit delinquencies up 95% year-over-year for businesses with fewer than 10 employees.
What I am watching:
In December, wages declined for the first time in almost two years, indicating that going forward, labor may not drive inflation to the same extent as before. When the Federal Reserve meets at the end of January, I will be watching whether interest rates are raised, or the slowing of the labor market is considered a positive sign for slowing inflation.
The higher delinquencies and lower credit scores are pointing to a continued tightening of the commercial credit markets thereby making access to necessary capital more difficult and expensive. This negative pressure could stifle new business openings and increase business closures.
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