“2023 Global Markets and Economic Outlook” | LPL Financial Chief Economist Dr. Jeffrey Roach | January 19, 2023

Dr. Roach is Vice President and Chief Economist for the Investor & Investment Solutions Group at LPL Financial, an independent brokerage supporting more than 21,000 financial advisors across 1,100 institutions in the U.S.  Utilizing charts in his presentation, he pointed out that Florida has the fourth largest economy in the nation in terms of Gross Domestic Product and its job growth “consistently outgrows” the national rate.

“Even before COVID, employment growth in Florida has been fantastic.  It has been a consistent outperformer and one of the reasons why is because Florida’s economy is amazingly diverse.  So we’re talking everything from housing, the sciences, the healthcare services, and manufacturing, this is private industry growth,” Dr. Roach said.  He pointed to the past decade’s lower recession risk in Florida reflected in a higher real estate rental and leasing rate, with more households relocating to Florida and other business-friendly states.  “I think the hybrid work environment is fantastic for Florida.  You have the opportunity to move to a place that has fairly attractive standards of living and tax structures that are fairly favorable.”

Dr. Roach identified four “hot topics” that will determine the 2023 financial market and economic outlook.

Inflation: “We know it’s a terrible story, particularly for some parts of the country relative to others,” he said, noting that one-third of the Consumer Price Index is housing and those homeowners with fixed rate mortgages haven’t seen much of a cost increase compared to those with variable rate mortgages and renters.  “I think we’re convincingly past peak inflation, with encouraging signs except for rents.  I think we’re going to get close to 3% by the end of this year, especially as more multi-family units come online,” he said.

Recession: Dr. Roach noted that although 2022 saw two consecutive quarters of negative growth, “that does not make a recession…because so many parts of the economy are actually growing.”  He pointed to consumer demand for services that added 1.2% to total growth by the end of the third quarter of 2022.  Current leading indicators though point to more of a slowdown and likely recession.  “I think it’ll start early 2023.  The first half of this year will be negative, the latter half of this year, we can eke out some growth, hence, we see 2023 slightly above zero.”

Federal Reserve Policy: Dr. Roach described the “tug of war” between the markets and the Federal Reserve.  “The Federal Reserve says we’re going to keep tightening (the money supply) for the next couple of meetings and then hold steady for the rest of the year.  The markets have clearly priced in the fact that the Fed will most likely cut interest rates the latter half of 2023.  I think the markets are right,” he said.  Dr. Roach said labor markets are key and that the previously high quit rate of construction workers is starting to change “in a massive way” and will bode well on the overall quit rate among all jobs nationally.  “Here’s the not so good.  Florida does have a challenge with just filling openings.”

Real Estate: Dr. Roach described the real estate market as a “tale of two economies,” with a big dip in construction of single-family homes and a big increase in new multi-family units, such as apartment complexes.  “I think that’s actually going to do great things for the rent problem that we see right now in this country,” he said.

Dr. Roach told Club members that the economic headwinds of 2022 – inflation, China’s economic trajectory, and the Russian invasion of Ukraine – could become the tailwinds pushing the economy in 2023.

(You can also view the entire Club meeting on YouTube.)