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Economic Review: August 2023

Robert R. Teeter

Managing Director


Economic growth is resilient and inflation continues to moderate. This has been a winning recipe for investors this year. Nonetheless, stocks and bonds might be facing a short-term holding pattern as much of this progress has already been reflected in rising valuation levels.

The longer-term outlook is likely to be more favorable, as the Fed has restored major policy flexibility and tech-driven productivity gains should help boost productivity and margins. Productivity is notoriously difficult to measure. While official statistics from the Bureau of Labor Services paint a volatile and mostly stagnant picture, a simple statistic of GDP per worker shows the continued march of progress over time for productivity.

Chart of US GDP per worker

The economy remains on solid ground but is losing some momentum as the final elements of “rebound” growth work through pockets of the services industry. A strong employment picture and continued reshoring trends will help keep the economy out of recession but with decelerating growth.

Current estimates for the Atlanta Fed’s GDP Now metrics and the New York Fed’s Weekly Economic Indicators point to economic growth of +2.4% and +1.2%, respectively. Pairing those models with real-time data and the employment picture, we estimate GDP will post gains around +1.5% for the remainder of the year.

The source of economic stability has been an increasing number of employees on payrolls. At a new high of 156.2 million, the economy now employs 2.5% more people than it did one year ago.

As earnings season gets underway, early signs confirm these trends—a solid consumer is supporting slow GDP growth, with a mixed picture on profits.

Another encouraging signal for the longer-term outlook is the broadening out of gains in the equity market. Recently, small cap stocks have begun to outperform large cap stocks. This trend may continue, as continued movements towards reshoring, a strong U.S. consumer, and a stable outlook for the U.S. Dollar will help domestic activity.

July 2023 performance table

Valuations are likely to remain stable as the Fed rate hike cycle draws to a close. We view the Fed’s strategy of a pause and then a hike over the last two meetings as being part of a deliberate move to stretch out the process, recognizing that the next policy meeting isn’t until September. At that point, there should be ample evidence to determine whether inflation is sufficiently cooling or whether it has become “stuck” and requires additional hikes. We expect to see progress.

The next source of fuel for stocks will come from the earnings outlook for 2024. We expect a slowly growing economy and margin stability to set the stage for earnings. For bonds, a definitive end to the rate hike cycle should create a favorable backdrop, with rates starting to come down.

This communication contains the personal opinions, as of the date set forth herein, about the securities, investments and/or economic subjects discussed by Mr. Teeter. No part of Mr. Teeter’s compensation was, is or will be related to any specific views contained in these materials. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. © Silvercrest Asset Management Group LLC

About the Author

Robert R. Teeter

Managing Director Contact