Greater Oklahoma City Outlook: a look at national economic fundamentals

Editor's note: This is an excerpt from the recently released 2023 Greater Oklahoma City Economic Outlook. 

READ THE FULL 2023 GREATER OKLAHOMA CITY OUTLOOK 

READ the 2023 Greater Oklahoma City Outlook Overview

Look back at 2022's biggest relocations and expansions

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

Slowly, the number of persons identified as participating in the national 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 their 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-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.