By Madeleine Benn Tuesday, February 28th, 2023

Whether there will be a recession or not, or whether we are already in one or not, depends on the economist you talk to on any given day.

For Peter Rupert, the director of UCSB’s economic forecast and a professor of economics, he made his stance on the subject clear during the organization’s Feb. 23 event.

“The problem is I don’t forecast. It’s too hard and I don’t like being wrong half the time,” Rupert said.

Despite this sentiment, Rupert was able to provide context for the current market situation.

The definition of a recession is fluid, with some economists arguing it is following two consecutive quarters of negative growth while others simply saying there’s no concrete answer.

Rupert leans toward the latter, stating that in this go-round if economists go with the former, they’re only telling the public about the recession after six months of being in one.

“(The Fed) cares a lot about being ahead of the curve and making sure people understand expectations and they fell behind this time,” said Rupert.

“They kept saying it’s supply chain issues, its transitory, inflation is going to go away in a few months. They kept saying it month after month after month and finally, some of them got the idea that maybe it was not. Maybe it’s here to stay for a while.”

He went on to explain that this is the first time the Fed has gotten so heavily involved in the Treasury since Nixon’s era.

“The gross federal debt is now close to 140% of GDP. Why is that an issue? Because someone must pay it back,” said Rupert, emphasizing that it won’t be the money managers and economists of today doing the heavy lifting but their children and grandchildren.

Historically, the federal debt held by the Federal Reserve has been about 3% to 5%. Today 25% of the debt is held by the Federal Reserve.

Still, the Fed is doing something now, Rupert said.

 “The Fed is gaining some credibility. Inflation is falling. Yes, it took a lot. It’s going to take some more,” he said.

Rupert added that in comparison to recessions dating as far back as the end of the Civil War, the recessions society faces today are fewer in quantity and less severe in length.

“The U.S. is strong, we’re not in a recession,” Rupert said.

Asked if we are headed toward a recession, Rupert responded that it was a “stupid question” as any time you are not in a recession, you are headed toward one, he said.

He concluded by saying that recessions happen all the time, but that no economist can predict the turning points.

At the event, there was also a panel that included speakers Francois DeJohn of Hayes Commercial Group and Mary Ricks of Kennedy Wilson.

Kennedy Wilson operates mostly on the West Coast as well as in the U.K. and Ireland.

Ricks gave her take on the Fed’s interest rate hikes.

“I definitely think 2021 was a record year in terms of transaction volumes… 2022 followed that trend and then they hit the brakes in the summer with all the hiking,” said Ricks. “And I think, for me and Kennedy Wilson, the multifamily business and the industrial business, which continues to grow… are two good products for an inflation hedge.”

DeJohn spoke a bit about the housing rates in Santa Barbara.

“I would say it’s actually very similar here, locally,” said DeJohn. “The multifamily and industrial market has just been unbelievable. They’re both at like a 1.7% vacancy rate, so it’s kind of hard to make mistakes when you have vacancy rates that low and you’ve seen pricing and rents go up in both those categories.”

After having spoken with a colleague at Blackstone, the largest real estate company in the world, Ricks said they are sitting on $40 billion of equity capital.

And if borrowing is not fixed in the next three to six months, they’ll start deploying their own assets, but it’s all dependent upon the credit markets.

With office space less occupied, corporations are trying to figure out how to bring people back into the physical office.

Ricks added that some of her cohorts at other major companies will base future layoffs on who has and hasn’t returned to the office.

More locally, according to DeJohn, there’s a weird dynamic in that everyone wants to live here but it’s too expensive.

But with remote work here to stay, it will be hard to convince people to come back and stay in the area.

On a final note, an audience member asked about the advent of AI and machine learning mechanisms, such as ChatGPT, and what that will mean for the current job market. Rupert was happy to explain that there will always be jobs and job creation.

He provided the anecdote that since 1951, only one job description has become seen as obsolete, elevator operator. He added that all the basic functions of the job are still being done but from other positions.

So, while, there’s no longer someone in the elevator pushing the button for the passenger, now there’s someone to help with your bags and check you in and tell you about the great local attractions.

Not only is the market on the rebound, but jobs are plentiful and will continue to be in spite of remote work and new technologies, according to Rupert.