The likelihood of a recession, fears of an escalating war in Ukraine, and ongoing supply chain disruptions are among the most immediate trends shaping the U.S. economy, according to Dana Peterson, chief economist for the nonprofit The Conference Board.
“We are expecting a recession in the United States that can potentially start right now and extend to the first half of next year,” Peterson said during her keynote address on the first day of the AVMA Veterinary Business and Economic Forum, held virtually Oct. 24-25.
Probability models and leading indicators, such as high levels of inflation and labor shortages, have warned of a coming recession since August 2022, Peterson said. The Federal Reserve, hoping to tamp down inflation, has raised interest rates “very quickly and very aggressively,” to heights not seen in decades, she added.
Peterson said The Conference Board expects the inflation rate will return to somewhere close to the Federal Reserve’s 2% target by 2024. Factors driving inflation higher, she said, include strong demand for goods and housing, along with factory closures abroad, supply chain bottlenecks, and commodity price spikes.
Rising interest rates makes it more expensive to buy goods that are often financed, including homes, cars, furniture, and even cell phones, Peterson said. So how are consumers responding to these economic pressures? Spending has dropped on goods but has increased for services. This increase is likely temporary, however, as the nation enters a recession.
Homeownership, which Peterson described as being very important in terms of whether or not people own pets, spiked during the pandemic as a result of low interest rates. Now that the pandemic is in the endemic phase, housing prices and mortgage rates have risen sharply, and new home sales have dropped substantially.
Household spending on veterinary care dropped between 2018 and 2020, then climbed nearly 5% between 2020 and 2022, Peterson added. “People adopted animals during the pandemic, and they need to continue to take care of those animals, so there’s still demand for veterinary services,” she said.
As for the U.S. labor market, The Conference Board projects the unemployment rate will hover around 4% during 2023. Participation in the labor force has grown since the great resignation of 2020 among 25- to 54-year-olds, whose participation numbers have recovered to just shy of pre-pandemic levels. The same cannot be said for people who are 55 and older.
“Their participation rate collapsed during the pandemic and has not recovered,” Peterson said. “It looks like it won’t, which isn’t a surprise because many people are retiring, and those retirements are contributing to labor shortages.”
These and other demographic changes are potential contributors to a tight supply of veterinarians over the next decade, Peterson said.
Peterson offered several solutions to the tight supply of labor, including offering flexible hours and work arrangements, encouraging later retirement, job sharing, and training.