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Tuesday, April 23, 2024

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DeSalle Predicts ‘Mild Recession’ in ’23 Financial Forecast

Crest Savings Bank President/Chief Executive Officer Anthony DeSalle is shown Jan. 11 with Greater Wildwoods Chamber of Commerce Executive Director Tracey Boyle-DuFault
Christopher South

Crest Savings Bank President/Chief Executive Officer Anthony DeSalle is shown Jan. 11 with Greater Wildwoods Chamber of Commerce Executive Director Tracey Boyle-DuFault, left, and former Wildwood Crest Commissioner Joyce Gould.

By Christopher South

WILDWOOD – Crest Savings Bank President/Chief Executive Officer (CEO) Anthony DeSalle, in his 2023 financial forecast, predicted a mild recession with pullback in consumer spending nationally.
DeSalle was the keynote speaker at the annual event presented by the Greater Wildwood Chamber of Commerce, Jan. 11, at the Wildwoods Convention Center.
DeSalle said one must wonder if consumers are going to reduce spending, even as inflation dipped from a high of 6.6% in June 2022 to 5.6% in December 2022, which is still well above the 1.2% mark seen in December 2020.
“We still have higher prices, and you have to wonder if the consumer is going to pull back on spending,” he said. “That brings us to the question, is a recession likely? My answer is I think it is likely a mild recession.”
DeSalle added that does not mean a dramatic slowdown.
“To me it’s more of a description of economy as kind of cooling and slowing down nicely versus an outbreak, and it’s profitable,” he said.
Factors that rise faster or slower than inflation tell economists about recessions. DeSalle said recession has been setting in in the housing market.
He said the National Bureau of Economic Research looks at several factors of production or activity, including income in relation to inflation, spending habits, and employment levels, including layoffs.
DeSalle named some major firms or corporations that have announced layoffs, including Amazon, Twitter, and Goldman Sachs. He said he did not think small- to medium-sized businesses would be as likely to pursue layoffs, if possible.
DeSalle began his talk with comments about the U.S. economy, starting with the U.S. gross domestic product (GDP). He said that in the prior 10 years leading up to 2021, the nation saw the longest economic expansion in U.S. history, with a kind of a recession on either side.
He said there was growth in 2022. The 2022 number of $25 trillion (GDP) is a projection based on the three factual reported quarters of 2022.
He said the U.S. has growth of GDP of about 5%, noting that if one looks at GDP adjusted for inflation, considering the selling of goods and services produced, the first and second quarters of 2022 were a contraction, followed by a rebound in the third quarter. A contraction in GDP is noted when there are two consecutive quarters as a recession.
“That’s a classic definition of a recession,” DeSalle said; however, he added that the National Bureau of Economic Research basically says it will decide when there is a recession, not just two consecutive quarters.
DeSalle said that what has driven profits most recently is the U.S. consumer and his willingness and reliability to pay inflated prices for the goods and services that people look to buy, so corporate profits have remained strong. He said, however, there will probably be a small downtick in corporate profits.
“There’s going to be a limit, essentially, to what the U.S. consumer can bear to pay for the same thing. So, you buy something this month, next month, you’ve got to buy the same thing and it’s more expensive. That will wear on us. Eventually, we will buy less,” DeSalle said.
With the transition from consumers purchasing predominantly goods to predominantly services, it might leave retailers with higher inventories, which they are forced to mark down or liquidate, leading to corporate profits beginning to diminish in the coming quarters.
DeSalle said there could be some prices reverting to pre-Covid shutdown levels, perhaps locally with room rates.
“If you have a hotel, and your room rate, in 2019, 2020, was $175, and last summer, it might have been $300 a room, I don’t know, but I would suggest that there’s going to be a kind of return to a bit more of a norm in terms of pricing,” he said.
DeSalle said a vacation destination, or a second home destination, is a little bit different than the rest of the country.
“I still think there is a clear and obvious transition away from goods spending to services spending,” DeSalle said. “People are still taking vacations, and I don’t think we’re going to get to a point where it gets that severe that they won’t, but they might be a little more price sensitive.”
He said consumers’ “price sensitivity” will be different than it was last summer. The takeaway, he said, is the consumer continues to spend by saving less and borrowing.
DeSalle said borrowing is not going to be speculative or expansionary, but more out of a calculated necessity. Lenders, he said, would look at the track record of businesses and see what that business can sustain and if they can borrow more.
People are still coming to vacation in Cape May County. In 2022, tourism tax receipts exceeded $7 billion, up from over $6.5 billion in 2021, and $3.7 billion in 2020. There was a nearly annual increase in tourism tax receipts from 2014 to 2019.
DeSalle said the 30-year mortgage rate is kind of an obvious bellwether in the market. He said that when you get over 6%, debt management becomes costly.
“I don’t think that it’s going to be so severe that we’ll see a contraction of activity,” he said.
DeSalle said the type of use by owners is changing somewhat, where locally there are fewer people buying vacation homes that they use several times per year. They are now investing in what he called “second primary homes,” where they live three to four days per week.
At the same time, home prices are increasing. DeSalle said this creates a wealth effect for consumers and has provided a basis on which they can either refinance or take a cash out and incur more debt to sustain their “spending inflationary environment,” saving less to maintain their spending habits.
DeSalle has been with Crest Savings Bank since 2014. He became president and CEO in 2018 and has been in the financial services industry for 21 years.
He is a certified public accountant and has a Bachelor of Science in economics with a concentration in finance from the University of Pennsylvania and a Master of Business Administration (MBA) from the College of Commerce and Finance at Villanova University. 
Thoughts? Questions? Contact the reporter, Christopher South, at csouth@cmcherald.com or 609-886-8600, ext. 128.

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