2023 Forecast: ‘Higher than usual’ chance for economic slowdown

Photo / Fred Field Amanda Rector is the state economist for Maine.

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What’s the outlook for the economy in Maine and nationwide this year?

“There is a higher than usual chance of a slowdown in 2023,” says Amanda Rector, Maine’s state economist. “Contributing factors include ongoing inflation especially impacting energy, shelter and food prices, and the Federal Reserve interest rate increases intended to bring inflation under control.”

She gave her assessment just after the Fed raised the target for the federal funds rate to a range of 4.25% to 4.5% on Dec.14, reiterating its commitment to bring inflation back down to 2%. The Federal Open Market Committee said that while recent indicators point to modest growth in spending and production, inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices and broader price pressures.

As the Fed raises interest rates to tame persistently high inflation, some types of economic activities may be affected more than others, Rector notes.

“Retail trade, construction, finance and insurance may be affected relatively more, while health care and social assistance will likely be less affected,” she says.

“High energy prices and housing affordability are my biggest concerns,” she says: “If residents and businesses are paying more for fuel and electricity, they have less money to spend on other parts of their budgets. Similarly, high housing costs can limit spending in other areas.”

As for Maine’s labor market, she observes that most of the people who left the workforce during the pandemic and are still out of the labor force are older workers who accelerated their retirement plans.

“There are many strategies to increase labor force participation of older workers, including skills, training and increased workplace flexibility,” she says.