Annual economic forecast predicts continued growth for metro

In 2023, the Oklahoma City metro should continue to show positive growth despite slowing national economic conditions, according to the Greater Oklahoma City Chamber’s annual Greater Oklahoma City Economic Outlook.

The Oklahoma City MSA now accounts for 41% of the state of Oklahoma’s total GDP, or four out of every ten dollars of goods and services produced. Last year saw the metro returning to pre-pandemic employment heights. In 2022, the economy experienced year-over-year nonfarm annual job growth of 3.4% or a gain of 22,000 jobs in the Oklahoma City MSA (preliminary estimates). The largest percentage year-over-year job gains (all over 5%) were found in mining/oil & gas (+11.6%), transportation, warehousing & utilities (+7.6%), wholesale trade (+6.9%), administrative services (+5.8%) and health care (+5.5%). The only sectors experiencing declines were found in information (-3.5%), state government (-1.1%) and financial activity (-0.2%).

Positive Oklahoma City metro nonfarm job growth in 2023 is expected, with the baseline job forecast scenario growing by 2% or adding approximately 13,600 jobs by the end of 2023. Supporting details for each industry is offered in the following commentary. Two alternative forecast models that the Greater Oklahoma City Chamber tracks separately show a slightly more modest 2023 employment growth between 1.4% and 1.6%. The local economy remains vulnerable to national and global uncertainties that may disrupt economic conditions.

According to the report, 2023 will begin much as 2022 did – with talk of recessions. In 2022, the conversation was premature. Declining real GDP in the first and second quarters of the year seemed to indicate a recession, but labor markets and consumer spending showed otherwise. While no rigorous and technical definition of a recession exists, recessions tend to be self-revealing. If you must ask if the economy is in recession, the answer is no.

For example, from 2022 Q1 into 2022 Q2 real GDP fell for 40 states, with the sharpest contractions in Wyoming and Connecticut. Over this same period, the real GDP in Oklahoma fell at an annual rate of -1.6%. Nonfarm employment rose in nearly every state, with Alaska and Wyoming being outliers. Nonfarm employment growth in the second quarter in Oklahoma grew at an annual rate of 2.8%. A strong labor market, coupled with consumer spending supported by record savings, kept the economy out of recession.

In 2023, the question is whether labor market strength and resilient consumer spending can maintain their strength in the face of tightening monetary policy and support additional economic growth.

Both labor market conditions and consumer spending remain strong by historical standards, but both are deteriorating, with consumer spending declining rather aggressively.

The pace of new job creation has slowed in recent months from a peak of 714,000 net new jobs in February 2022 to a preliminary estimate of 284,000 net new jobs in October 2022. The pace of job openings is also gradually slowing from a peak of 11,855,000 job openings in March 2022 to 10,334,000 job openings in October.

Slowly, the number of persons identified as participating in the labor market as unemployed and looking for work is rising, with 6,059,000 persons identifying as such in October. The balance between job openings and the unemployed population still indicates a tight labor market, with 1.7 job openings per unemployed person.

The current pace of job creation and openings is generally consistent with a healthy economy, but the trajectory suggests the labor market’s strength is waning. All hopes of a policy soft landing in 2023 hinge on the ability of the labor market to support modest job creation and wage gains to offset falling demand from higher interest rates and tighter financial conditions.

Consumer spending is offsetting weakness in business investment to support U.S. economic growth. Consumer spending, in turn, is being supported by a mix of savings and credit that is quickly eroding. Household net worth and savings are falling, while credit card use, and delinquencies are rising. It is increasingly unlikely that household spending will be able to keep pace with inflation through 2023. Household net worth fell from $142 trillion in late 2021 to $135 trillion in 2022 Q2. At the same time, household savings have fallen to a level well below their pre-pandemic value. The pace of consumer spending slowed markedly in November 2022, with credit card balances, delinquencies and issuances all up significantly from a year ago.

A recent Federal Reserve report notes that excess savings are declining from its pandemic policy peak, with the remaining extra savings held disproportionately by high-income households. Heading into the second half of 2022, the report noted that, for now, excess savings would provide a buffer to support household spending as the economy slows. That buffer appears to wane as we head into 2023 as banks tighten lending standards, household net worth falls, and credit card balances and interest charges increase.

Transunion’s 2022 Q3 Quarterly Credit Industry Insights Report found consumers turning aggressively to credit card debt and unsecured personal loans to support spending in the face of inflation and slowing economic activity. Credit card balances reached a record high of $866 billion in the third quarter for a 19% year-over[1]year increase. The average debt per borrower increased 12.7% year-over-year to $5,474. As the share of accounts paying their balance in full decreases and interest rates increase, the cost of carrying debt balance rises, further eroding household balance sheets. As 2022 turns to 2023, consumer spending appetite will fall, leading to an economic slowdown in the coming year.

It is an understatement to say the last few years have been economically unpredictable. The onset of the pandemic forced businesses to abruptly stall operations and consumers to seek safety at home. An abrupt shift towards goods consumption stressed already challenged supply chains. Government policies injected trillions of dollars into the economy while monetary policy further subsidized risk through quantitative easing. The result was a rise in equities, real estate, and other risk asset prices far beyond what would have been warranted by underlying fundamentals. As the economy reopened consumers shifted again abruptly towards services consumption and service providers across industries scrambled to staff up to pre-pandemic levels. Consumers unleashed a policy-fueled wave of consumption that exaggerated all of the temporary and transitory inflation pressures. Suddenly, inflation was persistent and troubling, demanding the hawkish attention of a dovish Fed. The Fed responded by communicating intentions to constrain inflation and raised short-term interest rates repeatedly in 75 bps chunks.

As we enter 2023 household balance sheets are shedding the strength of previous years, the pace at which prices are increasing has peaked and is moderating but remains considerably higher than policy’s 2% target, and bond markets are doubting the Fed’s hawkish resolve. The best-case scenario increasingly appears to be a year of very slow global economic progress and there is little reason to expect Oklahoma to be a counter-cyclical outlier to global economic forces.

The year behind conformed to expectations as the recovery indeed pressed forward, labor markets did inch toward pre-pandemic levels, inflation persisted and interest rates moved higher with a shift in monetary policy. Unfortunately, the long-predicted year of real excitement is upon us.

For a more detailed look at national, state and local economic trends, the full 2023 Greater Oklahoma City Economic Outlook will be released on Feb. 9 at greateroklahomacity.com/outlook.

This article originally appeared in the February 2023 edition of VeloCity newsletter.