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Business 38 December | 2022 Uncertainty about all of the above is the name of the game, and that makes planning diffi cult. "We are faced with a kind of two-sided coin," says Palisin. " e positive side represents strong current orders and a continuing need for more workers while the negative side represents infl ationary pressures and global headwinds." Which side of the coin will show its face in 2023? Economists advise keeping an eye out for a few key leading indicators. "In the early part of the year, retailers should watch what is happening to the cost of money," says Basu. "Infl ation is the driver of near- and medium-term economic outlooks." A second vital element, he says, is the employment picture. "Employers should watch for any emerging weakness in the labor market." Finally, what about consumers? "Any softening of spending would point to a looming recession." Adding downward pressure is the disruption in the delivery of goods that continues to plague retailers large and small. "Supply-chain problems have improved a bit over the past year, but there hasn't been the signifi cant resolution we had hoped for," says Palisin. "Random shortages in materials and deliveries are still plaguing our members, and that's leading to backlogging of orders. Companies just can't get materials or parts." Russia's invasion of Ukraine has worsened the situation, notes Palisin. " e war has created an energy crunch and a disruption in raw materials from that region that have trickled through the economy and exacerbated supply-chain issues." Companies are responding by expanding their sourcing from countries other than China. HOUSING HEADWINDS Buyers of homes tend to shop a lot at retailers, and that sector is also entering a period of correction. " e underlying dynamics of the housing market are changing, as lower aff ordability spurred by higher prices and mortgage rates is weighing on demand," says Yaros. e rise in prices is discouraging consumers from signing on the bottom line. Median prices for existing single-family homes are expected to have increased 11.5 percent during 2022, when fi nal fi gures are tallied. at comes off a strong 18 percent increase in 2021. Some relief is expected in 2023, when prices are predicted to decline by 2.6 percent. While aff ordability has sunk to its lowest level since late 2007, the current 30-year fi xed mortgage rate is at its highest level since 2000, leading to a decline in purchase applications. Tight housing supply is only adding to upward pricing pressure. e inventory of for-sale homes remains historically low, and new ones will be scarce on the ground. "We expect housing starts to fall by 1.8 percent and 2.0 percent in 2022 and 2023, respectively," says Yaros. " is compares with a 15.1 percent increase in 2021." ere's only so much the industry can do to bolster housing supply—one big reason being the above-mentioned labor shortage. " e unemployment rate for experienced construction workers is about as low as it's ever been," says Yaros. "Capacity limits have delayed housing completions and contributed to a record number of housing units in the pipeline." One bright spot in the housing picture: Mortgage credit quality has never been better. " e percent of loans delinquent and in foreclosure is at a record low," says Yaros. " is goes to the stellar underwriting standards since the fi nancial crisis, and borrowers' credit scores are much higher." While lending standards for mortgage loans are now tightening, the credit spigot is unlikely to seize up as it did during the fi nancial crisis of 2008. LOOKING AHEAD Given the above concerns, it's little wonder that business confi dence is taking a hit. "Retailers are worried about a number of things right now," says Hoyt. He off ers the following comments on the most important ones: INFLATION. "While it does bump up retailers' nominal sales, it also undermines consumer confidence and spending." WORKER SCARCITY. "Retailers are having to pay a lot to get staff , and turnover is high." THE POST-PANDEMIC SHIFT TO SERVICE SPENDING. People are spending more on travel, hotels and restaurants. RISING INTEREST RATES. This is another depressant on shopper activity. RECESSION. Are we currently in one or not? "There's a lot of talk about the high probability that the Federal Reserve won't get this right. A recession is never good for retailers." SUPPLY-CHAIN ISSUES. "Delivery disruptions translate into higher costs for merchandise and higher inflation, which eats into real spending and consumer confidence."

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