Most Wisconsin Companies Have Pessimistic View of the Economy, But Fewer Think Recession is Likely

Tuesday, July 18th, 2023 -- 11:01 AM

(By Joe Schulz, Wisconsin Public Radio) Most Wisconsin companies have a pessimistic view of the economy, but fewer think a recession is likely than did six months ago.

But, according to Joe Schulz with the Wisconsin Public Radio, even fewer say they plan to hire additional employees in the next six months. That's according to a new survey of 170 businesses of varying sizes from state business lobbying giant Wisconsin Manufacturers & Commerce, or WMC.

From winter to summer, the survey shows that the share of employers who think a recession is coming in the next year decreased from 60 percent in January to 54 percent in the newly released survey.

Steven Deller, professor of Agricultural and Applied Economics at the University of Wisconsin-Madison, said businesses remain in "wait and see mode," as they've dealt with economic uncertainty since the Federal Reserve began raising interest rates more than a year ago.

Unemployment rates in Wisconsin have remained at record lows, and recent national data show inflation has come down significantly from 2022 highs. Research from investment banking firm Goldman Sachs says the probability of a U.S. recession in the coming year declined from 35 percent in March to 25 percent last month after the federal government avoided a debt default.

But Menzie Chinn, a professor of public affairs and economics at University of Wisconsin-Madison, said Goldman Sachs' prediction might be a little rosier than that of most economists. He said economists are anticipating an economic slowdown in the latter half of 2023 or early 2024. Chinn said the economy is still growing, but growth has slowed over the last six months or so.

Slowing the economy to cool inflation was the intent behind the Federal Reserve's interest rate increases. On Wednesday, the U.S. Department of Labor said headline inflation fell to 3 percent, its lowest level since March 2021.

But core inflation, removing volatile food and energy costs, remained relatively high at 4.8 percent, well above the Fed's target of 2 percent. Chinn and Deller both said they anticipate the Fed will continue to raise interest rates until core inflation gets closer to the target.

Inflation is the increase in the cost of goods and services. Higher interest rates combat inflation by causing a drag on economic growth, as borrowing becomes more expensive. The potential for a slowdown may be reflected in the employers' survey answers on hiring plans.

The share of businesses planning to add employees decreased from 60 percent six months ago to 49 percent in June in the WMC survey. Communications director Nick Novak said rising interest rates and inflation have already slowed business investment and contributed to lower hiring expectations.

As fewer businesses are looking to hire, the survey shows that wage growth is also slowing. Last summer, almost half of Wisconsin employers planned to raise wages by over 4 percent. That number fell to 21 percent this June.

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