“A year full of surprises.”
That’s how Patti Brennan, President and CEO of Key Financial Inc., characterized 2022 during Friday’s Economic Outlook hosted by the Chester County Economic Development Council.
This was the 19th year for the event, which offers expert insight into local, national and global business.
Brennan, who was named a Hall of Fame Advisor by Barron’s of Dow Jones & Company, was joined this year by economics specialist Dianne P. Manges, Director/Senior Investment Advisor for Truist Foundations & Endowments Specialty Practice.
The couple offered their perspective on the impact of an “unprecedented post-COVID economy”, the challenges and the trends for 2023.
A surprising year
In detailing the surprising nature of 2022, Brennan cited Russia’s invasion of Ukraine early last year and supply chain issues that lasted longer than expected, according to a press release after the event.
“As a result, inflation rose rapidly, and the Federal Reserve had to be as aggressive in fighting inflation as it was in combating the impact of COVID during the global shutdown,” she said.
Brennan found that 40% of measurements of inflation are related to housing. She added that there is a 12- to 18-month lag in the inclusion of the data in the Consumer Price Index (CPI), which is a measure of the average change over time in the prices paid by consumers for goods.
Because of that lag, she said, the country is dealing with the underlying inflation of 2020 and 2021, rather than what the data reflected at the time. Supply chain issues are not back to pre-pandemic levels, but they are getting better, she said, noting that aggressive Fed policy is also having an impact.
Brennan expects inflation to fall further in 2023.
The last surprise of the year, she said, was the bond market’s reaction to rising interest rates.
“Since the Great Depression, we’ve only had three years where the bond market has been negative. Up until last year there had never been a year where the bond market had fallen by double digits, but we have seen a 13% loss in a bond index,” she explained.
“Surprises move the economy and the markets negatively. It’s okay to be surprised, but we can be prepared for the surprises. Surprises can also be positive and it is important not to miss them.”
The ‘R’ word
According to information in the press release, Brennan said one thing that wouldn’t come as a surprise in 2023 — a recession.
“It’s the most anticipated recession of all time. Businesses and consumers have prepared for this, so the damage may not be as severe,” she said. “The numbers show that the American consumer has never been in better shape heading into a recession, and companies also have very strong savings on their balance sheets.”
Manges added that while the risk of a recession is there, it is not necessarily a given.
“We clearly have the tightest global monetary policy in 40 years, from the Fed to central banks large and small tightening to fight inflation after massive stimulus. But consumer spending is expected to be quite strong in 2023 and the labor market is tight,” she said. “The American consumer has the potential to keep us afloat.”
Manges said concerns about Ukraine and China remain “top of mind” for many investors concerned about recessionary pressures and sluggish growth. However, she pointed out that the US and Europe – which together make up half of the global economy – will be the driving force behind assessing the health of the economy and politics in 2023.
In addition, she is “cautiously optimistic” that China’s President Xi Jinping will begin a third term and deliver over 5% GDP growth. “He’s aggressive and competitive,” said Manges.
In this photo taken on Friday, January 20, from left to right are: Dianne P. Manges, Senior Investment Advisor for Truist Foundations & Endowments Specialty Practice; Gary W. Smith, President and CEO of CCEDC; Patti Brennan, President and CEO of Key Financial Inc.; and MaryFrances McGarrity, Senior Vice President – Business Development Services at CCEDC. (PHOTO COURTESY OF CHESTER COUNTY ECONOMIC DEVELOPMENT COUNCIL)
US terms
Domestically, Brennan said she expects borrowing costs to keep rising and unemployment to rise, and advises people to keep their emergency funds fully funded.
She added that there are opportunities for retirees and older workers.
“Retirees had to put up with more of their money in stocks because bonds paid minimal interest. Now we have more options,” she said, adding that empty nesters who are behind on their retirement savings can now put $22,500 plus another $7,500 into their 401(k) each year.
“A few empty nesters who might feel a little behind can put $60,000 in a 401(k) to catch up, and they should,” Brennan added.
The always popular Economic Outlook event was held in the Penn State Great Valley in East Whiteland Township and was attended by more than 150 business leaders and private investors.
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