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The Money Ladies' New Year's guide to the economy

NEW YORK, NEW YORK - DECEMBER 16: People walk by Goldman Sachs headquarters in Manhattan on December 16, 2022 in New York City. Goldman Sachs, the global investment bank, has announced that it plans on cutting up to 8% of its employees early next year as world economies and markets continue to struggle with inflation, the war in Ukraine and China's Covid policies among other issues.   (Photo by Spencer Platt/Getty Images)
NEW YORK, NEW YORK - DECEMBER 16: People walk by Goldman Sachs headquarters in Manhattan on December 16, 2022 in New York City. Goldman Sachs, the global investment bank, has announced that it plans on cutting up to 8% of its employees early next year as world economies and markets continue to struggle with inflation, the war in Ukraine and China's Covid policies among other issues. (Photo by Spencer Platt/Getty Images)

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On Point’s Money Ladies are back, and what do they see for 2023?

“Lots of financial experts was thinking, okay, maybe we’ve turned the corner. Except when we turned that corner, we got smacked right back with another storm, which was called inflation.”

2022 was rough: record high inflation, gas prices and inventory glut.

But don’t fret — the Money Ladies are here to help.

“Be cautiously optimistic, but, you know, prepare for the worst. And if the best happens, you’re in a great position.”

Today, On Point: Money Ladies Michelle Singletary and Rana Foroohar join us on what to expect from the micro to the macro economy for 2023.

Guests

Rana ForooharCNN global analyst. Financial Times global business columnist and associate editor. Author of several books, including “Don’t Be Evil,” Makers and Takers” and “Homecoming.” (@RanaForoohar)

Michelle Singletarypersonal finance columnist for the Washington Post. Author of “The 21 Day Financial Fast.” Her column “The Color of Money” is syndicated in newspapers across the country. (@SingletaryM)

Interview Highlights

On mixed messaging from the Fed about inflation

The Chair of the Federal Reserve, Jerome Powell, has repeatedly said that he doesn’t think inflation is going away anytime soon, and rate cuts will not be likely in 2023. Here he is during an economic outlook speech at the Brookings Institute on November 30th:

So when will inflation come down? I could answer this question by pointing to the inflation forecasts of private forecasters or of FOMC participants, which broadly show a significant decline over the next year. But forecasts have been predicting just such a decline for more than a year, while inflation has moved stubbornly sideways.

The truth is that the path ahead for inflation remains highly uncertain. For now, let’s put aside the forecasts and look instead to the macroeconomic conditions we think we need to see to bring inflation down to 2% over time. As our last post-meeting statement indicates, we anticipate that ongoing increases will be appropriate.

So what does this mean for inflation?

RANA FOROOHAR: There’s a technical way to look at the economy. And that’s the way that, frankly, we speak about it a lot of times. And it’s certainly the way that the Fed speaks about it, you know, because at the end of the day, these people are doing math. That’s what they do up there in the Fed offices. They do math, but we live in the real world. And there are a lot of things happening.

And this is one of the reasons why, you know, we are constantly having these conversations and why the Fed is doing news briefs. And things keep changing, because the real economy is very dynamic. And at this point, I’m sure Michelle would agree with this. There are more different vectors in play that could take us in totally different directions than I have ever seen in my own personal life.

And I’ve been doing this for 32 years. And that’s typical when you come out of a major thing like a pandemic, at a time when we were probably already at a recessionary pivot point. Aside from the COVID downturn, which was pretty quickly buffered … by a lot of fiscal spending. You haven’t seen a real recession since the 2008 financial crisis and its aftermath. So we were due for something.

And then you get this complicated thing called a pandemic, and then you get the war in Ukraine and then you’ve got the effects on food prices and commodity prices, and then you’ve got what the pandemic did to housing markets. There’s a lot in play right now, so people can be absolutely forgiven for feeling like, Oh my God, this is stressful and confusing. Because it is.

MICHELLE SINGLETARY: We can’t predict what’s happening because it’s just so crazy. Because we have part of the economy where people are doing extremely well, even though their stock portfolio is down. And then you’ve got, you know, right on the other side, people who were not even limping along, they were just crushed by, you know, low wages and not being able to afford, you know, to buy your home or the rent and all of this converged.

And so what is tricky right now is the people who are doing well, we don’t want them to pull back so much that they tip us over. So that’s why I always sort of say there’s really a lot of things going on in America.

Those people who are doing well, we don’t need you to panic. Doesn’t mean that you should go out and spend recklessly. But if you were going to hire that contractor to put on your deck and you had the money saved and you’re secure, go ahead and do that. That keep that contractor working and the people that he or she employs.

But on the other end, if you were living paycheck to paycheck and you were elevating your lifestyle by borrowed money, or you were manic about buying this certain house that you know is going to impact your finances, that it’s going to be too much for you. Don’t do it. And so that’s sort of why the message is so mixed, because you have to tailor the values to where you are.

On the labor market in 2023

SINGLETARY: I think if you are a skilled worker and you’ve had some experience, it’s a good time to be that person. You can demand higher wages, and no one’s tied to any companies anymore. I mean, back when, you know, my grandmother raised me and she was like, you work for one company the rest of your life. Nobody’s doing that anymore.

“There was a story I read recently to talked about how small manufacturers are having a hard time keeping people. They train them and then they’re thinking, Well, I’ve got this experience now. I can go out and market myself better. And so now they’re finding that they have this high turnover of employees.

“And of course, that means that it’s a slowdown in their ability to deliver products because then they have to retrain people. So, for certain workers out there, it’s a good time for you, because you are more marketable. But at the same rate, it’s hard for companies to keep people. … Now, if you don’t have any skills, it’s a little tougher.

“Because even though those type of jobs are out there, you know, working in restaurants and fast-food chains and things like that, the wages, even though they’re up, they still aren’t keeping pace with the ability for you to pay for rent and groceries and save to send your kids to college. And so that’s what’s sort of we’re facing in terms of this job market.”

FOROOHAR: You still have a situation where you cannot make a living on $15 an hour and you have people that are totally employed, have two or three jobs and are still having trouble keeping pace with the cost-of-living increases. But in the short to medium term, I’m a little more concerned about the middle market. And I’ll tell you why.

“A lot of companies that I speak to have been investing heavily certainly during the pandemic in AI and accent stripping software, for example, so that, you know, folks that are working in India or the Philippines, you call up to a call center and they actually sound like you’re speaking to someone in Miami or in Austin. That actually increases the number of jobs that you can offshore and outsource.

“So, I’m a little concerned about technology related job disruption at the middle of the rung and even at the higher levels. I spoke to a CEO about a year ago and he said, you know, I think tech workers don’t realize, even high-level tech workers don’t realize, that if you can do the job in Tahoe, you can do it in Bangalore. And I thought that was very, very interesting. And I am starting to see signs that you’re going to get middle market job outsourcing and white-collar job outsourcing.

“And actually, at a policy level, that’s a big topic that that union representatives are focusing on now. They don’t want to see service jobs. Tech service jobs have the same sort of, you know, hollowing out that you saw with manufacturing work in the 80s and 90s.”

On the state of the housing market

FOROOHAR: “It’s going to vary radically, depending on what market you’re in. I think that in some of the frothy-ist markets you are going to start to see, and you already are seeing, a slowdown. Because places like the top tier cities, some of the big vacation resorts, that’s about folks that have a lot of asset wealth, spending it on housing and that asset wealth has corrected. We saw, you know, a 20% correction in the market this year.

“So I think you’re going to see top tier markets coming down. But conversely, there’s still room to grow in certain places and we have not settled into the kind of post-pandemic future of work yet. I still see a big split among CEOs about whether they are going to bring people back full time, whether they’re going to go hybrid, whether they’re going to be completely remote. That’s going to have radical effects on some of those kind of second city markets that really rose particularly in the south and the West. So long story short, I think housing is going to remain higher than people would like it to be, for longer than they would like.”

What advice would you give to people as they try to navigate 2023 with these high rates that we’re seeing?

SINGLETARY: “Get rid of debt. It’s going to be more expensive in 2023 as the Fed. It has indicated increasing interest the Fed rate and then save, save, save. That doesn’t mean that you shouldn’t still spend if you’ve got it in there, but definitely shave off more to boost that emergency fund. Because if you lose your job, if there is a deep recession, that that will be there to help you get through that tough time.

What about for the folks who don’t earn enough to be able to save?

SINGLETARY: I always go back to my, where can you cut? The biggest part of what people spend is housing. And that means, you know, maybe doubling or tripling up with folks. All three of my 20-something kids are living with us right now by choice. They don’t have any student loan debt, but they’re doing so, so they can boost their savings. And so if you can, not everybody has that ability, to live at home or live with a relative.

“But I would suggest that we start looking at housing and multigenerational housing differently. You know, it’s okay. It doesn’t mean that someone has failed if they are living with you, if you can take someone in maybe two single moms or dads, join together and get a house together. And share that cost of housing, you know, that’s the biggest part of people’s budget. And if you can reduce that, do so.”

Related Reading

Washington Post: “Seven ways you can financially prepare for a recession” — “High inflation, rising interest rates, a spike in gas prices and a volatile stock market have taken consumers and investors on a roller-coaster ride in 2022.”

Financial Times: “‘Wage inflation? What wage inflation?’ ask workers” — “Cost of living increases put employees in the red even as the labour market remains tight.”

This article was originally published on WBUR.org.

Copyright 2023 NPR. To see more, visit https://www.npr.org.