PROVIDENCE – In many ways, the party is over.
At least that’s how panelists at Providence Business News’ Economic Trends Summit on Thursday see it when it comes to the national and state economies, which they believe are headed for recession sometime in 2023, though how painful that will be and for how long. weather. It will last remains to be seen.
Consumer spending and historically large business inventories have dampened the economy in the past two years, but a cooling effect is in the offing, as spending slows and government revenue declines, some panelists concluded.
Thomas Tzitzouris, head of fixed income research at Strategas Research Partners and a keynote speaker at the summit, said recent polls show business owner confidence in the 2023 economic outlook has plummeted. Consumer debt and interest payments have skyrocketed in a “toxic” mix, he said.
Strategas estimates that the Federal Reserve will raise its benchmark interest rate to a maximum of 5.25% and that the nation will officially enter recession early in the third quarter.
And for business owners in particular, rising costs for energy, loans and salaries, the latter of which has grown 4.5%, will continue to create a burden on operations, Tzitzouris said.
“If you expect this economy to slide into a soft landing, don’t expect it,” he told summit attendees at the Providence Marriott.
In fact, according to Tzitzouris, the question of whether Rhode Island will enter a recession has already been answered. He argues that he already has, by all the leading indicators. Many high-income individuals have fled the state, which has lowered their tax base. And with the end of the generous federal cash inflow in the form of bailout funds, the state could be in for a tough year.
“Rhode Island’s economy is basically stagnating right now,” he said.
In the near term, the residue of leftover government spending that helped keep citizens and businesses afloat during the pandemic may still go toward alleviating the worst effects of the looming economic downturn, said Julietta Georgakis, chief of staff for the RI Executive Office of Commerce.
Governor Daniel J. McKee’s recently unveiled $13.8 billion budget proposal includes millions of dollars in small business initiatives for energy costs and seed funding for start-ups, as well as public infrastructure investments that could create jobs . Small tax cuts are also proposed.
“With a little luck [the recession] it will be milder and less painful than originally anticipated,” he said. “[These programs] it can help strengthen our citizens against recession.”
But those in the investment and research space, like Peter R. Phillips, chief investment officer at Washington Trust Wealth Management, predict an economic tightening that could hamper long-term investment.
“It’s hard not to see the writing on the wall,” he said. “These are numbers you can’t ignore.”
Rhode Island must invest more resources to match job seekers with employers who require a skilled workforce in the fields of technology, engineering and health care, Phillips said.
There was also a discussion about the need to speed up commercial project completion time by cutting government red tape to alleviate supply chain issues. It’s heavy lifting, said Karl Wadensten, CEO and president of VIBCO Inc., who said the state is now “entering uncharted territory.”
Wadensten said his company has between $1.5 million and $2 million in inventory, which is taxable.
As lead times for the delivery of necessary parts and materials increase, along with rising costs, declining consumer spending, and a lack of a properly trained workforce, many businesses may find themselves face a difficult year.
“Time is the only number that cannot be recovered,” he said, adding that many companies have shifted from “just in time” to “just in case” philosophy, buying additional inventory that may have nowhere to go if you buy it. they collapse. .
Kevin Casey, vice president of sales for Sweeney Real Estate and Appraisal, said the state must do everything possible to help commercial and residential development.
“If there is nothing to go up, then there is nothing to fill,” he said. “But this work-from-home model is not going away.”
Tzitzouris said that the drag on consumption will have later effects.
“The bull market in leisure and entertainment ended after COVID,” he said. Households will keep their cash until economic conditions improve.
But Wadensten sees a bright side. Unemployment remains at record lows and the younger generation of employees has more choice than previous generations as they are willing to take jobs where the market demands.
“The future of business must be dynamic,” he said. “There are a lot of creative people who want to start new businesses in Rhode Island.”
How the younger workforce responds to these changes is an unknown factor, Wadensten said.
“That’s the wild card,” he said.
If the state can adapt to change, the effects of an oncoming recession can be mitigated with the right mix of government policy and prudent financial management.
Many changes to employment regulations and business practices that were considered temporary have turned out to be long-lasting, such as hybrid workspaces and increased employee demands for work-life balance.
“The pandemic fundamentally changed what work means,” Georgakis said.
This mismatch between manpower and skill sets requires a recalibration of expectations, Phillips said.
“We are going through some growing pains in the way we think about childbirth,” she said.
Christopher Allen is a staff editor for PBN. You can contact him at Allen@PBN.com.
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