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May 2023 #15286 Page #86
Positive Trends Provide Hope for a Late Year Recovery By The Lesko Financial Services Team
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t the start of a new quarter, the economy is continuing its bumpy ride toward recovery while still showing mixed signals. Forecasts going forward are for slower growth throughout the next two quarters before picking up steam in the latter part of this year and going into the next. There are lingering recession fears as the Federal Reserve’s interest rate hikes continue to impact manufacturing, investing, and borrowing. And some new concerns have surfaced, particularly in the banking sector. But after two full years of rising prices and a full year of Fed rate hikes, we can take a brief opportunity to step back, gain a little perspective, and brace for the tailwinds that still lie ahead.
Unexpected resilience The economy showed a surprising resilience in the first three months of the year, a large part of it due to the tight labor market. The Fed focused its concern on the employment picture and pledged to continue raising interest rates further while indicating they may come at a slower pace. The markets remained volatile but spurred early optimism, with the S&P up about 6.5% and the investment grade bond market up 4.5% for the quarter. But these gains have been tempered by slower growth forecasts and the belief the economy will weaken and potentially land in at least a mild recession before accelerating toward growth.
Banking jitters New worries were added to growing fears about the economic recovery in March with the second and third largest U.S. bank failures (not including investment banks) in U.S. history. Massive uninsured deposits were among the contributing factors to the collapse of Silicon Valley and Signature banks. The resulting solution for the FDIC to cover all depositors in these two troubled banks and for the Fed to step in with a bank lending plan to prevent future failures helped stave off a potential panic. But smaller and regional banks have seen withdrawals increase and bank stocks have suffered as fears linger. Continued next page
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