The first quarter of 2023 has seen a continuation of many key economic challenges consumers and investors faced throughout 2022.

Inflation worries and rising interest rates have hung over the U.S. and global economies in the first quarter of this year as more experts predict a recession before the end of 2023. However, key economic indicators including consumer spending and employment numbers have largely implied, despite these concerns, the looming recession has yet to have a materially significant impact on American consumer behaviour.

Compared to this time last year, the majority of these key economic signals paint a more positive picture though consumer spending and employment numbers in February experienced a slight drop off compared to January.

The U.S. Economy by the Numbers

• Year-over-year consumer spending is up 5.4% compared to this time last year. January consumer spending spiked 1.8%, the highest monthly increase in nearly two years, though this was offset to some degree by a decrease of 0.4% in February.

• The U.S. unemployment rate currently sits at 3.6%, representing a slight increase from earlier in the year. However, the current unemployment rate is still lower than it was at this time last year.

• The current U.S. inflation rate is 6.04%, down from 6.41% last month and 7.87% this time last year. While this remains higher than the U.S. Federal Reserve’s target rate of 2%, there is some evidence the Fed’s recent interest rate hikes have started to take an effect against further inflation increases.

• At their most recent announcement, the Federal Reserve once again increased its key Interest rate, now at 5%, the highest it has been in 16 years. However, it did issue signals it is nearing the end of its series of aggressive rate hikes intended to combat inflation.

While the year’s early numbers may seem to indicate a situation not as dire as many may have predicted, there remains a general sense of caution around U.S. and global economies. Consumers, investors, and economists will all be keeping a close eye on future developments surrounding these key indicators as the year unfolds.

Troubles in the Banking Sector 

One of the most significant developments in the first quarter of 2023 in the U.S. was the decline, and subsequent collapse, of Silicon Valley Bank (SVB) and Signature Bank. The headline-making closure of America’s 16th largest bank spurred several weeks of volatility in the banking sector for investors.

Naturally, the news of a bank collapse stoked investor fears, leading to a significant downturn in share prices across the financial sector. Smaller regional banks were particularly hard hit by the SVB collapse.

Despite this volatility, the consensus among experts is what happened to SVB and Signature Bank had more to do with their own portfolio, structures, and sector concentrations than with any broader weakness in the banking sector.

In his latest remarks, Federal Reserve Chair Jerome Powell called the U.S. bank sector “strong and resilient” and encouraged consumers that “all depositors’ savings in the banking system are safe.”

While we may continue to see lingering effects of SVB’s closure in the coming months, the expert consensus remains that isolated incidents with a small number of banks do not indicate a broader weakness in the sector.

What It All Means for You 

Economic uncertainty like what we are currently experiencing impacts us all differently. Inflation and high interest rates are not likely to go away any time soon, which means potentially several months of higher costs and more expensive loans. This ultimately means that spending power for the majority of Americans will remain relatively low compared to what they have experienced for the past decade and a half.

In times like these, it is important to stay mindful and attentive to how these events impact your own finances. These are also times when it is important to evaluate your situation and consult with your financial professional to discuss how you can best prepare yourself for current and future economic challenges.

All opinions and data included in this market commentary are as of March 23, 2023 and are subject to change. The opinions and views expressed herein are not intended to be relied upon as a factual prediction or forecast of actual future events or performance or a guarantee of future results or investment advice. The information contained should not be used as the sole basis to make any financial decisions. All investments are subject to risk, including loss of principal. Past performance is no guarantee of future results.