A recession in 2023 could be "mild" as unemployment rises above 5%, according to predictions from Citi Global Wealth Investments (CGWI).
The group's latest outlook report sees 400,000 construction jobs disappearing next year, with a total 2 million job losses across the economy.
“Housing that was started a year ago was at a higher sales pace and a dramatically lower mortgage rate,” noted Steven Wieting, chief investment strategist and chief economist at CGWI.
“While they finish those houses, they’re still employed. Then when you are done with that house you don’t have a new job to go to — and that’s how the coming year we think we lose all of those jobs," he added.
The report's authors expect unemployment to reach about 5.25% next year. The expected recession "won't be that deep, but it will be meaningful," said David Bailin, chief investment officer and head of Citi Global Wealth Investments.
“We expect for next year, employment will fall by 2 million people. That’s how we define our recession. We think there will be one, and it will be defined by that loss of jobs,” said Bailin. The job loss prediction is about one quarter of the number of people unemployed in 2009.
"But one thing I'm certain of: The housing market is collapsing at a level I haven't seen since 2008. I haven't seen this kind of drop since 2008."
The CGWI report identifies a sequence of opportunities for investor portfolios. For now, Bailin and his team recommend staying cautious, through high quality defensive equities and bonds.
The S&P 500 (^GSPC) entered into a bear market earlier this year. Stocks rallied in November, but strategists are warning of volatility ahead.
“Historically, no bull market has ever begun before a recession has ever started. So it’s highly unlikely that we’ve seen the lows [of the equity markets],” said Bailin.
“From the time the recession begins, whenever that is, the bull market recovery typically begins halfway through it,” he added.
Ines is a markets reporter for Yahoo Finance covering equities. Follow her on Twitter @ines_ferre