Will US see a recession in 2023? Two reasons why this economist says no

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Inflation, student loan forgiveness lead biggest money stories of year

Inflation and layoffs were some of the biggest finance topics of 2022. What does this say about the U.S. economy going into 2023?

Just the FAQs, USA TODAY

With uncertainty regarding if the U.S. economy will enter a recession in 2023, one economist laid out several reasons why he believes that likely won’t occur.

Michael Drury, chief economist of McVean Trading & Investments, was the keynote speaker at The Greater Memphis Chamber Chairman’s Circle’s annual “State of the Economy for Greater Memphis” event Wednesday at Memphis Botanic Garden. His speech focused on why the U.S. is unlikely to enter a recession in 2023.

“I’d say probably about 75% of economists currently think that’s where we’re going,” Drury said. “I don’t think so. I’ve been different for pretty much the last three years than the consensus call from the economists.”

Here are two reasons why Drury does not think a recession is near in 2023 and one source of concern for him.

Current business profits don’t indicate a recession

Drury said historically there has always been a massive slide in profits for businesses heading into a recession as they typically would lay off workers and adjust their cost structure to survive.

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Though with the COVID-19 pandemic, because more money was available for businesses through the federal government, they were able to make adjustments without resorting to layoffs, Drury said.

“In fact, they were able to keep employees,” he said. “(They) didn’t have much of a recession in terms of profits and the economy stayed up. Now even though the money is being taken away over time, profits are still relatively strong because businesses have been smart about how they manage their businesses.”

An economist’s rule also not indicator of a recession

About 20 years ago Drury came up with the “Drury Rule.” He said if you’re going to call a recession or boom you have to tell him three industries or three regions in the country that are either booming or in a lot of trouble.

“A recession is averages so somebody in a recession is doing worse,” he said. “Who is it? Then if you’re going to call it a boom you have to tell me three industries that are doing better. You have to identify the outliers.”

The housing industry is the only one Drury believes is in significant trouble. While industries such as energy, agriculture, defense, the auto industry and nonprofits are “winners” in the current economy.

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Student loan program a cause for concern

Drury said if a recession would occur, it depends on what happens next with the student loan debt saga.

His reasoning is an estimated 43 million households used to pay roughly $400 a month on student loan debt, up until three years ago. As a result, Drury said they’ve been spending that money and doing different things with it as opposed to paying off student loans.

Drury said it’s not ideal for consumers since they will go from having paid none for years to paying $200 or potentially more a month depending on how the matter is resolved, which he expects to happen in the third quarter of 2023.

“Hopefully, the economy will be moving along well enough that we can absorb, but that is the risk,” he said.

Omer Yusuf covers the Ford project in Haywood County, FedEx, tourism and banking for The Commercial Appeal. He can be reached via email Omer.Yusuf@commercialappeal.com or followed on Twitter @OmerAYusuf.