U.S. outlook for 2023.

• Author: Witte, Willard E.

A year ago, we expected that 2022 would produce a second year of economic recovery, although with deceleration from 2021. In both regards, this has (sort of) been the case.

Black swan events--A term popularized by the book The Black Swan by Dr. Nassim Nicholas Taleb. A black swan event is rare, unpredictable and unforeseen. It is an event with major consequences. These are not just unexpected crises, but shockers. According to the Visual Capitalist, the COVID-19 pandemic was a black swan event, along with the 9/11 attacks and the global financial crisis that launched the Great Recession. Generally, with 20/20 hindsight, people claim later that the event "could have been" foreseen. As Warren Buffett said in February 2017, "No one can tell you when these traumas will occur--not me, not Charlie, not economists, not the media." During the past year, the economy grew overall and the rate of growth slowed (see Figure 1). But the deceleration has exceeded our year-ago expectation. Over four quarters through 2022 Q3, total output grew just 1.8%, less than half the 4% we predicted in last year's outlook. The same pattern is also present at the disaggregated, component level; consumer spending, business investment, housing construction and government purchases were all significantly weaker than we expected--the latter two actually had negative growth. The one exception was the international trade sector, where both exports and imports had growth well above expectations.

Figure 1: Rate of change in U.S. real output 2019 2020 -29,9% + 35.3% 2021 7.0% 2022 -1.6% -0.6% 2.6% Source: U.S. Bureau of Economic Analysis Note: Table made from bar graph. In the labor market, this qualitatively correct/quantitatively wrong pattern is also present, but with the quantitative error reversed. Over the past 12 months (through October 2022), the economy has added jobs at a rate of 440,000 per month (see Figure 2). This is about 140,000 above our year-ago expectation.

Figure 2: U.S. monthly job creation Jan 2021 520 Feb 2021 710 Mar 2021 704 Apr 2021 263 May 2021 447 Jun 2021 557 Jul 2021 689 Aug 2021 517 Sep 2021 424 Oct 2021 677 Nov 2021 647 Dec 2021 588 Jan 2022 504 Feb 2022 714 Mar 2022 398 Apr 2022 368 May 2022 386 Jun 2022 293 Jul 2022 537 Aug 2022 292 Sep 2022 315 Oct 2022 261 Source: U.S. Bureau of Labor Statistics Note: Table made from bar graph. Unemployment has fallen another 0.9 points (see Figure 3) to 3.7%, nearly matching its pre-pandemic low and 0.3%...