NELLES: Another Biden-Era Recession Looms in 2023. The Question Is: ‘How Long, and How Painful?’

"Never underestimate Joe’s ability to f*ck things up," as Obama once warned us.


Low unemployment, moderating inflation, a teetering housing market, and unprecedented household debt all combine to drive economists to tarot cards, animal sacrifice, and Ouija boards to make their next predictions. Deconstructing and reconstructing the issues help gain an understanding of where the economy will go in 2023.


Per the Bureau of Labor Statistics, the unemployment rate fell to 3.5 percent in December 2022 – almost full employment.  The layoffs are starting, however, driven by tech companies. Alphabet (Google), Microsoft, Amazon, Salesforce, and Vimeo have announced a combined layoff of nearly 50,000 employees.

Strong unemployment numbers drove television pundits to claim that the U.S. will avoid recession in 2023. Bank of America CEO Brian Moynihan however claimed, of a recession, “if it comes, won’t be as bad a s people fear.” Moynihan said he expects the “U.S. economy to contract by just 1% for the first three quarters of 2023, then return to positive growth.”

Many recessions begin when unemployment is relatively low, today’s unemployment situation looks very much like the situation before the 1969-1970 recession, which started with the unemployment rate at 3.5 perecnt.  The 1969-1970 recession was induced by the Fed as it raised rates to try and cool inflation, driven by government spending. The recession lasted 11 months and GDP was only reduced by 0.8 percent.


The December consumer price inflation (CPI) numbers saw the rate of annual inflation decrease from 7.1 percent in November 2022 to 6.5 percent.  The decrease in the growth of inflation was driven by a decrease in the price of gas and used cars. Necessities such as food, shelter, and fuel oil, however, were all up, with fuel oil up 41.5 percent year-over-year, per the Bureau of Labor Statistics.  Simply put, prices are still going up, but not as fast as in previous months. And, the price of gas has been increasing throughout the new year, which does not bode well for January’s CPI report. Per the travel club AAA, the “national average retail price (of gasoline) was at $3.32 per gallon,” on January 17, approximately 17 cents higher than a month ago.

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The housing market continues to teeter on the brink of collapse, with only the learnings from the housing crisis of 2008 keeping the market afloat. The sales of existing homes in the U.S. slowed “for the 11th consecutive month in December as higher mortgage rates, surging inflation and steep home prices sapped consumer demand from the housing market.  Existing home sales are down 34 percent when compared to December 2021.” This is despite the fact that mortgage rates are at their lowest levels since September 2022.

People continue to back out of signed mortgage contracts at record rates as well. About 60,000 home purchase agreements fell through in October 2022 (the latest data available) according to Redfin, the most since Redfin started tracking that data in 2013.

The lessons learned from the previous housing crisis are the only reason we have not yet seen a collapse of the housing market.

Subprime mortgages are virtually non-existent. In Q2 2022, only three percent of “newly originated mortgages were originated to subprime borrowers, a sharp contrast to the 13% average between 2003-2007,” according to the Federal Reserve Bank of New York.

In the run-up to the 2008 housing crisis, approximately 35 percent of mortgages generated were adjustable rate, including 80 percent of subprime mortgages. In September 2022, adjustable rate mortgages represented only 9 percent of mortgage originations. With so many people sitting on fixed rate mortgages with relatively low interest rates, the inventory of available housing for sale has stayed low, which has kept prices high, saving the market… for now.

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Household Debt.

Household debt grew at the fastest rate in 15 years in Q3 2022, driven by increases in credit card usage and mortgage balances, per the Federal Reserve. Collective household debt was at $16.5 trillion, an increase of 2.2 percent from Q1 2022 and 8.3 percent from 2021.

The average credit card user was carrying a balance of nearly $5,500 in the fall of 2022, up 13 percent from 2021, and half of credit card users are carrying debt from month-to-month at a time when credit card interest rates are at near all-time high. More than a third of households used credit cards or loans to cover spending on necessities in September 2022, an increase of 19.3 percent from the previous year.

What does is it all mean? 

As the talking heads on the various cable financial news networks continue to talk the economy into recession, the data does actually point that way in 2023. History teaches that this recession should be short and mild. In the words of former president, Barack Obama, however, “never underestimate Joe’s [Biden] ability to f*ck things up.”  If Republicans in the House do take a firmer stand on the debt ceiling, spending, and taxes, and give Biden his wish list of spending, the recession will be long and painful.

Jim Nelles

Jim Nelles is a supply chain consultant based in Chicago, IL. He has served as a Chief Procurement Officer, Chief Supply Chain Officer, and a Chief Operations Officer for multiple companies. Jim served his country as a Naval Officer after attending college on an NROTC scholarship. He has a BA from Northwestern University in Economics and French as well as a Masters in Management from the JL Kellogg Graduate School of Business.

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