Cioffi: Economic best and worst of times

Will 2023 be the best of times or the worst, economically speaking? One could argue either way.

On the one hand, most data indicate that the economy and job market are chugging along nicely, but on the other hand, earlier last month Silicon Valley Bank became the largest U.S. bank to fail since 2008

It seems to have been an old-fashioned bank run spread the usual way, by fear, but through a new medium — Twitter. As I am writing this article, news of Credit Suisse Group's buyout by UBS is under way. Now many are wondering if a wider financial crisis is coming.

Times like these call for a one-armed economist, as President Harry Truman did when he became sick of advisers telling him: "Well, on the one hand. …"

So let's go through the latest data on the domestic economy and the tire industry to see if we can figure out which of our two hands is right.

Following the Silicon Valley Bank and Signature Bank failures and the Credit Suisee buyout, some were thinking the Federal Reserve would pause its run of interest rate hikes. However the Federal Reserve announced it will be increasing interest rates by 0.25% following the meetings that took place March 21-22, despite the concerns.

The Federal Reserve is trying to walk a tightrope. It wants to slow the economy and bring inflation down, but it worries about going too far and bringing on a serious recession, for which the agency would receive considerable blame.

Regarding inflation, the latest Consumer Price Index data show it continues to be elevated but moderating. The price index for all items increased 0.4% in February, after a 0.5% increase in January. For the trailing 12 months, the index now registers 6% inflation, down from 6.4% last month.

Regarding a recession, it remains a serious concern but has not developed yet. The most recent U.S. economic growth data — for the fourth quarter of 2022 — indicate reasonably healthy annual Gross Domestic Product growth of 2.7%.

And the latest U.S. employment data showed 311,000 jobs created in February, more than expected. The unemployment rate edged up slightly to 3.6%, with more Americans entering the labor market, but remains historically low. Overall, the job market remains strong.

We did see a small dip in the latest numbers for our sector. Employment in U.S. rubber product manufacturing dropped to 136,900 in January from 139,300 in December. Employment in U.S. tire manufacturing fell to 58,400 from 59,200 for the same period. Could this dip be a canary in the coal mine, signaling a more serious industry contraction to come?

A recent Tire Business story written by Bruce Davis ("Tire company forecasts: No to low growth in 2023") reports that, based on internal forecasts, some of the major players in the tire industry seem downbeat about 2023, at least globally.

Another industry forecast released in February by the U.S. Tire Manufacturers Association projects U.S. tire shipments will grow to 334.2 million units in 2023, from 332 million in 2022, which would be a tepid 0.7% growth rate.

Overall, these forecasts seem to align well with general expectations about the economy. Most analysts are not projecting a deep recession, but they are not expecting good times either.

With all due respect to President Truman, maybe a one-armed economist is not what we need right now. The data are simply too mixed.

Unwarranted certainty can be a dangerous thing. For now, what we know is that hiring managers still face a tight labor market. Good workers still have options, so getting them will take effort.

At the same time (note I didn't say, "on the other hand,") concerns of a coming slowdown or even recession continue to be widespread. The Federal Reserve is likely to continue raising interest rates, even if it does take a pause at the next meeting. That combined with the bank failures is plenty to make the current economic fears reasonable.

In the near term, a key thing to watch for is whether more banks fail. If a wide scale financial crisis develops and causes a real recession, it could bring hiring freezes and layoffs.

But since that is not currently the case, I want to end optimistically.

There is something nice about the tire industry. When times are good, orders grow because of new vehicles. When times are bad, we get more orders from people who want to keep their old vehicles in service.

Mike Cioffi is founder of Tire Talent, a boutique recruiting agency dedicated to the tire industry. You can reach him directly: [email protected].