By Andrew Moran
A new poll found that most Americans believe the United States is headed for a recession or is already in an economic downturn.
Pessimism about the economy hit a record high amid rampant price inflation, rising interest rates, and growing recession concerns. According to the latest CNBC All-America Economic Survey, 69 percent of U.S. adults have negative views about the current economic landscape. This is the highest figure since the survey began 17 years ago.
Sixty-seven percent of Americans report that their wages are lagging behind inflation. A quarter of Americans say their earnings are keeping pace, while just 5 percent report their household income is growing faster.
Real average hourly earnings (inflation-adjusted) fell 0.7 percent year over year in March.
“The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 1.6 percent decrease in real average weekly earnings over this period,” the Bureau of Labor Statistics (BLS) reported.
Although inflation has slowed to its lowest level in nearly two years, most Americans revealed they are changing their spending and lifestyle behaviors, be it traveling less or spending smaller amounts on entertainment. Many others have relied on their savings to pay for purchases.
More than half (54 percent) of respondents reported that the jump in food prices has significantly impacted them.
The U.S. annual inflation rate eased to 5 percent last month. Food prices in the Consumer Price Index (CPI) slowed to 8.5 percent year over year in March, with supermarket costs remaining elevated at an annualized pace of 8.4 percent.
Two-thirds of Americans think the country is headed for a recession or is currently in one.
The negative views on the economy have ostensibly affected President Joe Biden. His approval rating fell to 39 percent, down from 41 percent in the November survey. In addition, only 34 percent approve of the president’s handling of the economy.
Is a Recession Coming?
The Federal Reserve is expecting a “mild recession” later this year due to the fallout from the banking turmoil, according to minutes from the policy meeting of the Federal Open Market Committee (FOMC) in March.
“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” the meeting summary stated.
There has been a growing chorus of experts who agree that the odds of a recession are higher.
Former Treasury secretary Larry Summers thinks the chances are “probably about 70 percent.”
“The chance that a recession will have begun this year in the U.S. over the next 12 months is probably about 70 percent,” Summers said in a recent interview with Foreign Policy.
“As I put together the lags associated with monetary policy, the credit crunch risks, the need for continuing action around inflation, the risk of geopolitical or other shocks affecting commodities, 70 percent would be the range that I would be in.”
Economists at Capital Economics published their latest quarterly U.S. economic outlook report, warning that the “acute bank stress” will result in “further tightening” of credit conditions, “which leaves us even more convinced that the economy will fall into recession this year.”
ING economists are also “more convinced than ever with our recession call for the U.S. economy,” citing in a research note the financial turmoil and the Federal Reserve’s monetary policy tightening.
Roger Hallam, the global head of rates at Vanguard, warned during an online event on April 17 that tighter lending standards will help drive “the economy into recession in the second half of this year.”
“There’s a lot of policy uncertainty right now,” Hallam added.
The Fed’s H.8 Report highlighted that loans and leases at all banks dropped to $12.06 trillion, down from $12.07 trillion from the previous week. This data came as the Federal Reserve Bank of New York’s March Survey of Consumer Expectations (SCE) revealed that nearly 53 percent of U.S. households believe it will be harder to access credit a year from now. More than 58 percent also say it will be harder to obtain credit than a year ago.
Investors also agree that an economic downturn is on the horizon.
According to the April Marquee QuickPoll for Goldman Sachs, 53 percent of institutional investors anticipate a recession in 2023, and 36 percent expect one in 2024.
Austan Goolsbee, Chicago, thinks it is possible that the U.S. economy will slip into a mild recession this year.
“There is no way you can look at current conditions around the U.S. and not think that some mild recession is on the table as a possibility,” Goolsbee said during an interview on CNBC on April 14.
However, James Bullard, president of the Federal Reserve Bank of St. Louis, discounted the prevalent recession talk, telling Reuters that many of these projections “are coming from models that put too much weight on the idea that interest rates went up quickly.”
“What about the strong labor market? What about that feeding consumption? … What about the pandemic money still to be spent off, both at the state and local level and at the individual household level?” Bullard said.
“Inflation is coming down, but not as fast as Wall Street expects.”
Since the U.S. central bank started its quantitative-tightening campaign more than a year ago, the benchmark federal funds rate has risen 475 basis points. Last month, the FOMC voted to pull the trigger on a quarter-point rate hike, lifting the policy rate to a range of 4.75–5.00 percent.
Recent economic data suggest that the U.S. economy could be slowing down.
March retail sales tanked 1 percent, down from negative 0.2 percent in February and was worse than the market estimate of negative 0.4 percent.
Industrial production slowed to an annualized rate of 0.5 percent, while manufacturing output fell 1.1 percent year over year in March.
Despite weakening figures, the Federal Reserve Bank of Atlanta’s GDPNow model estimate shows 2.5 percent growth in the first quarter.