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March economic outlook: What 2023’s first quarter might tell us about the rest of the year
Several little stories may help you piece together what’s going on—and what’s coming—this year.
- Jobs, housing, and wealth are going through a redistribution cycle. That happens regularly in economies. The reshuffling immediately impacts housing markets and certain sectors’ job strength. It may have broad market implications for the future, but only time will tell.
- Economists often have competing theories about what’s happening now—and what will happen next. (They’re real people, after all.) But their theories don’t always hold up against unpredictable human behavior.
Time flies when you’re having fun … or watching the zigzag of 2023’s economic readout. Nearly three months in, a few pieces of the puzzle are stitching together for a picture that’s still incomplete but offers some trends and insights worth noting. Let’s recap, and try to make the outlook come into focus, even just a little bit.
Jobs plus housing equals redistribution in real time.
In last month’s economic outlook, we talked about the juxtaposition of lots of tech layoffs but strong employment numbers, a contradiction that continued in February. The job losses you’re reading about hint at something that happens all the time: redistribution.
“When we think about redistribution, often we use an analogy of moving change from one pocket to another,” says Heather Winston, director of individual solutions at Principal®. “But if you look a little deeper, we’re also seeing talent reshuffling into sectors outside of technology that may be desperate for people with those skills.”
Also important to consider: As a total share of the employment market, the tech sector is relatively small—just 2%. Those companies added a lot of staff during COVID shutdowns. But service industries—which shed jobs en masse during shutdowns? They make up a whopping 36% of overall private-sector payrolls.1
Those service companies have been trying (and struggling) to ramp back up to meet increased demand, especially over the last year. They’re not firing; they’re hiring—a lot. And the jobs added aren’t just front-office or front-line:
Nearly every company needs people with skills like information technology, and many prefer to have talent on staff.2 That is redistribution at work, in real time—and it’s a trend that will probably continue in 2023.
“If you’re paying attention, you’ll start to notice redistribution all over the place,” Winston says.
For example, take housing and its connection to recent tech layoffs. Housing markets up and down the West Coast are taking a hard hit.3 What else is central to places like San Francisco and Seattle? Tech, of course.
“In economic outlooks, nothing is absolute, and nothing is static. This is a good example,” Winston says. “Talent redistribution is moving people from one place to another, but economic shifts like these don’t happen in isolation or affect just that data point.”
Those puzzle pieces of jobs and housing will likely keep moving this year in ways that might feel contradictory. That’s neither good nor bad—but to be expected.
Your wallet: Are there any redistributions you need to make in your financial plan? For example, maybe an emergency expense set you back on debt repayment. Or, perhaps you want to funnel more funds into retirement savings but need to cut elsewhere to do so. Learn tricks to getting the most out of your paycheck.
Economics has lots of theories. Reality is more complicated.
Officially (and simplistically), the field of economics studies how resources, goods and services, production, and other factors like government intersect. So it’s not surprising that there are many competing theories within that field. Adam Smith, for example, is known as the father of free trade, while John Maynard Keynes advocated for government spending when economies were in a slump.4 Modern economists such as Alan Greenspan have also put a stamp on notions of how and why economic systems function.
One consistent critique of the study of economics is that it too often cannot fully consider the variability of human behavior. When “x” happens in an economy, “y” isn’t always the result, partially because people don’t always make decisions rationally or linearly.
Take recent discussions of the probability of a recession: Many economists believed (or still believe) it’s a sure thing. But others have begun to shift that point of view.5 Some are closely watching wage growth: While there are still lots of jobs open, competition for some of those jobs is up, which gives employers more flexibility. Inflated sign-on bonuses may not be as necessary anymore to lure workers, which equals a slowdown on wage growth compared to 2022. That, in turn, serves as a downward pull on inflation.
“Human beings often think and act in absolutes,” Winston says. “But one data point moving down doesn’t necessarily mean all data points will move down.”
Your wallet: Your tax planning may have a domino effect on your financial plans. For example, if you receive a big refund, it’s possible you could change your withholdings for next year and have more money available to accomplish additional financial goals. You can also make choices now to save on taxes—even before you file on April 18.
What’s one positive financial habit you want to improve or add? Here’s a habit to think about: Log in to your Principal account once every month to review your contribution rate and see if you want or need to adjust. Don’t have an employer-sponsored retirement account? We can help you set up your retirement savings with an individual retirement account (IRA).
1Wall Street Journal
2Wall Street Journal
3 Wall Street Journal
5New York Times
The views and opinions expressed are for informational and educational purposes only as of the date noted and should not be considered investment advice. No forecast based on the opinions expressed can be guaranteed and may be subject to change without notice. No investment strategy, such as diversification, can guarantee profit or protect against loss.
Investment advisory products offered through Principal Advised Services, LLC. Principal Advised Services is a member of the Principal Financial Group®, Des Moines, IA 50392.
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