Inflation and higher interest rates expected to continue Dayton region impact in 2023

Kershner sees rising interest rates as especially harmful to small businesses.

“Our businesses need economic certainty and confidence in the market and business lending. Higher interest rates have a direct impact on small businesses’ ability to borrow essential funds, which will affect cash flow and ultimately operations, including hiring personnel and capital investments,” Kershner wrote in a recent Dayton Daily News column.

Last year, in an effort to tame inflation by slowing the economy the U.S. Federal Reserve began tightening monetary policy and raising the federal funds rate, driving up borrowing costs.

Bowman said several of his customers at Noble Tool are hesitating on moving ahead with bigger, capital-intensive projects, due to inflation and rising interest rates. Both make it more expensive to borrow and invest. A weak stock market doesn’t help some of his customers, either.

“They are giving Noble Tool orders because we are trying to hold down our costs and they need repairs and tooling on existing production lines,” said Bowman. “They are also spreading out tool work to some shops like Noble Tool, because they want to maintain their production lines with their internal personnel and outsource tool room work to gain capacity.”

The impact of higher interest rates is clear in the region’s housing market.

The “frenzied” housing market of recent years has cooled to what Blatt calls a “normal or stabilized housing market.”



The number of home sales in the Dayton area declined 25% in December compared to December 2021, according to Dayton Realtors data. Total sales for the full year declined by nearly 8.5% compared to 2021.

In addition to paying higher interest rates, homebuyers also paid more for houses in the region in 2022 compared to 2021. The average sale price in 2022 was $239,754, a 9.3% increase compared to 2021, the data show.

ExploreSEE PART TWO of this series: Regional economic outlook: Mild to moderate recession possible in 2023, local experts say

Mortgage rates are double what they were a year ago, but still below the 50-year historic average, Blatt said.

“The fifty-year historic rate is 7.76% and 30-year fixed-rate mortgages today are between 6% and 6.75%,” he said. “This is slowing the velocity of residential sales but the inventories remain at historic lows. Buyer demand, while slowing, still exceeds supply so housing prices will continue to rise, albeit at a slower pace than in the past few years.”

Blatt said commercial real estate has not returned to “normalcy.”

“The office market is still suffering due to ‘work from home’ practices and a reticence for some to return to the workforce,” Blatt said. “We are clearly seeing a decline in pricing of office space, both on the sale and leasing side. We will likely see some redevelopment of office space into residential or other uses as demand for office space is retracting.”

But he said demand for industrial space remains quite high.

Dickerson said larger companies can often self-finance projects so interest rates don’t have as much of an impact, but he said the rates are slowing construction of investment real estate, like apartments and mixed used developments.

That may not always be bad, Dixon said.

“Inflation and higher interest rates, although perceived as stifling the economy and commercial growth, have a way of weeding out risky projects and commercial investment which perhaps should not happen,” Dixon said.

Projects costs have also gone up for government.

Several city project bids came in higher than the engineer’s estimate, but a bigger issue is some projects had no bidders because contractors didn’t have enough employees to do the work, Heck said.

Colbert said rising costs mean the county must choose what projects to pursue.

“Some large projects that can be pushed to next year and beyond, will be pushed,” Colbert said.

“However, we will keep the region attractive for the business community by continuing to invest in robust economic development programs, ensuring we have a trained and ready workforce, and purposely investing in our infrastructure, to include water, sewer, roads, bridges and other key structures, so we can support the businesses that are already here, as well as those considering making our region home.”

Credit: Knack Video + Photo

Credit: Knack Video + Photo

Even in times of high inflation and interest rates, Sullivan said the Dayton region can stand out.

“One advantage we have on inflation is our cost of living and the cost of doing business are more affordable here than in other parts of the country,” Sullivan said. “That hasn’t changed even as interest rates have risen. Comparably, we’re still more affordable.”

Melin is confident in the overall strength of the region, even as development costs rise due to inflation and interest rates.

“As far as economic development, I am still optimistic as we have strong leadership in organizations like the Dayton Development Coalition and JobsOhio,” Melin said. “Ohio and the Dayton region have become increasingly more attractive as evident by significant new investments from Honda, Intel, Fuyao and many others.”

This week in our 2023 economic outlook series

Sunday – The region’s general economic outlook

Monday – The possibility of a recession and its impact

Today – The effect of inflation and higher interest rates

Wednesday – Labor shortages and workforce issues

ExploreJOIN US – COMMUNITY CONVERSATIONS: What’s in store for region’s economy in 2023?

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