Processing Your Payment

Please do not leave this page until complete. This can take a few moments.

Updated: June 26, 2023 Midyear Economic Update

Viewpoint: The Central Mass. economy remains resilient

We began 2023 facing several economic risks: persistent inflation, higher interest rates, and geopolitical unrest. We have witnessed bank failures and narrowly avoided hitting the debt ceiling. Despite several of the classic recessionary signals, the economy has remained surprisingly resilient. The labor market has defied expectations, consumers haven’t curbed their spending, and the stock market has been gaining back steam. Sentiment has shifted toward optimism against the cautionary backdrop.

A headshot photo of a man with red hair wearing a suit
Ryan Kittredge

Amidst rapid monetary tightening, GDP remained positive in the first quarter of the year, although at a slower rate of growth. Corporate earnings of the S&P 500 were stronger than anticipated, and most companies beat analysts’ expectations. Outside of larger technology companies, layoffs have not swept across industries. Jobs are plentiful, and wages remain strong. Inflation has been trending down, and finally, wage growth is higher than inflation, yielding an increase in real (inflation-adjusted) earnings for the first time since the inflation surge began two years ago.

The potential impact of artificial intelligence has become clearer and more imminent with programs like ChatGPT reaching millions. This narrative has sparked a frenzy with technology stocks. After suffering significant losses last year, technology companies in the NASDAQ index have experienced a turnaround on the innovation and monetization potential of this life-changing technology.

June’s Consumer Price Index increased 4% from one year ago, the lowest level in about two years. While this is encouraging and could signal the Federal Reserve’s interest rate hikes nearing an end, inflation can be a sticky issue with lasting implications. Slowing inflation doesn’t mean prices are going down, but rather the pace of additional price increases is moderating. Housing cost is the largest factor in CPI, and it has become more expensive to over the last few years. While average incomes have increased, they have not kept pace with cost increases. Simply put, life has become more expensive, and it’s likely to stay that way.

Interest rates are at the highest levels in nearly 15 years. A mortgage at 3% doesn’t look quite as attractive at 7%. A variable rate line of credit when prime was at 3.25% isn’t nearly as compelling with prime at 8.25%. High lending costs, coupled with low inventory, means many homeowners are opting to stay put rather than forfeit attractive mortgages. People and businesses are becoming more reluctant to borrow, and for an economy built on borrowing, this can pose challenges to sustaining growth the way we did under the prior period of easy monetary policy.

The abundant money supply created post-COVID is declining as the Fed reduces its balance sheet. Jerome Powell and the Fed are still navigating the balancing act between fighting inflation while avoiding a credit crunch and driving the economy into recession. It’s a tricky tightrope to walk, as the competing goals have traditionally required opposing strategies.

So, while some of the data and sentiment have improved, the key challenges we entered the year facing still linger.

In the face of many historical recessionary indicators, including further declines in the Leading Economic Index such as sharp slowdowns in manufacturing and building permits, an inverted yield curve, and negative consumer sentiment, the economy and the markets have been resilient. However, with tightening fiscal and monetary policy, data still points to probable economic contraction, with financial modeling painting a cautionary picture in the near-term.

This changes little for long-term investors with goals several years in the future. It’s important to consider holding periods with new investments and the possibility of seeing lower prices over the next few years. For shorter-term liquidity needs of income or anticipated expenses, taking advantage of attractive short-term savings rates is advisable. When borrowing, consider the possibility that interest rates could remain higher for longer. With personal planning, it’s important to be aware of the macroeconomic factors at play, but always plan in the context of your financial position and goals.

As we move into the second half of 2023, we will see how our economy is holding up in the face of higher interest rates and inflation.

Ryan Kittredge is a financial advisor and president of ClearPath Financial Partners in Northborough. Reach him at

Sign up for Enews


Order a PDF