Threats and Bright Spots for the Economy in 2023

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The primary drivers of our current inflation and the threat of a recession in 2023 are energy prices and deficit spending tied to increased national debt. Figure S1A shows the correlation between the price of oil and the change in the Consumer Price Index (CPI). Also, as the government enacts spending financed by increased national debt, the money supply (M2) will increase. This, in turn, causes the U.S. dollar to be devalued, interest rates to rise, and prices to increase. Then, economic activity slows, unemployment rises, and soon we are in a recession.

Some bright spots in the U.S. economy are as follows:

  • The COVID-19 pandemic in most nations continues to recede and is becoming significantly less disruptive to global supply chains, tourism, and travel.
  • Housing starts are slowing due to rising prices and rising interest rates, but they remain at the moderate level of 1.4 MM units, even as a slight shift is occurring toward smaller multi-family units and away from larger one-family units.
  • Consumer spending continues to grow, albeit at a slowing rate; inflation-adjusted spending is being fueled by the depletion of savings and rising credit card debt as inflation takes a bigger bite out of household income.
  • Employment is growing, gaining more than two million jobs year-to-date.
  • Interest rates, including mortgage rates, continue to rise, the result of increases in the federal deficit, Federal Reserve Discount Rate increases, and inflation. Interest rates are anticipated to continue at current levels through 2024 as the Federal Reserve raises the discount rate to curb rising inflation. In the end, interest rates are rising, but remain manageable given the average mortgage rate is 6.3 percent and the prime rate in July was 6.25 percent; home equity is rising as prices increase.
  • Real non-residential investment in structures, a measure of the inflation-adjusted investment in total new non-residential construction, is rising and should continue to strengthen. Also, the AIA Billings Index was 52.0 in the third quarter of 2022 and this statistic portends growth for commercial building and renovation in 2023.

Factors threatening the U.S. economic situation include:

  • Inflation continues to rise year-over-year, causing the dollar to decline, prices to rise, personal income to fall (which also impacts consumer spending), and interest rates to increase, all of which threaten to push the economy into recession if left unabated.
  • Energy prices remain high as the federal government has made investments in fossil fuels difficult, canceled oil and gas drilling permits on federal land, and this has caused fuel and raw material prices to rise.
  • Productivity has fallen three of the last four quarters, likely due to slowing business investment and falling labor productivity.
  • Continued undocumented immigrants and refugees entering the U.S. could threaten labor markets, expand welfare rolls and social costs, raise government spending and debt, while thwarting wage growth. Without wage growth, it will be hard to grow consumer spending, the primary driver of the U.S. economy.
  • Global trade disruptions could result from an escalation of the trade war with China and the unintended result of sanctions on or by Russia for its invasion of Ukraine. Also, a widening conflict emanating out of the Ukraine-Russia war could have a severe impact on the global economy.
  • Doubling of the IRS, the addition of 87,000 new IRS agents to review tax returns, could increase tax revenues and diminish personal income and investment.


The major indicators are indicating a continued weakening of the U.S. economy as inflation and government policies take their toll on economic viability.

This is a summary of the December 2022 Quarterly Market Monitor Report published by Market Insights LLC. NWFA members have exclusive access to the full report, which provides forecasts and analysis of economic, market, and industry conditions and trends affecting the North American flooring market. The report includes a historical and forecasted volume of dollar sales of total wood flooring (at mill sell price) per metro area and state. Separate reports are available for the United States and for Canada. The availability of the reports on a quarterly basis will provide NWFA members with current data that can help them develop business plans, prioritize inventory, and react to market conditions in a timely manner. NWFA members may download the full report by visiting

Santo Torcivia is president of Market Insights LLC in Reading, Pennsylvania. He can be reached at 610.927.2299 or

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