Economists warn about a possible recession in the United States. The United States certainly faces plenty of economic issues including rising interest rates, high inflation, and dysfunctional supply chains. However, the economy is strong by many other measures according to analysts. After the pandemic, employers added back nearly 6.5 million jobs in the past twelve months and the unemployment rate has fallen to 3.6%. Due to a lack of workers which seem to have vanished into thin air, employers are scrambling to find anyone that’s willing to come in and this is creating a bidding war on wages. Analysts say that this is helping to push inflation above the 2% target, but critics claim it is the excessive spending by the federal government which has pushed inflation to 40-year highs.
“It’s probably surprising to be talking about recessions at this point, given the momentum that we’ve seen, particularly in the labor market,” says Luzzetti, chief U.S. economist for Deutsche Bank. “The ultimate conclusion is that we are having very strong growth, but it is inflationary growth,” he adds.
The odds of a recession are 28% in the next 12 months which is up from 13% a year ago. Inflation seems to be a primary concern of the Fed. For the past 12 months it was assumed that supply chain issues were the primary cause of inflation. The Fed assumed that these issues would work themselves out after the pandemic ended. Instead, price hikes have continued to soar. Consumer prices were up 8.5% in March when compared year over year. This is the sharpest increase since 1981. Experts are still holding out hope that supply chain issues will disappear and help to bring down inflation. There was some good news on Tuesday, the price of used cars fell by 3.8% in March. However, prices of other items continued to climb higher.
63% of analysts believe that the Fed can engineer a soft landing which would mean bringing inflation under control without triggering a recession. President Biden’s national economic council director, Brian Dies believes that a strong job market and extra savings in consumers bank accounts will help the nation overcome the economic challenges of high inflation. This begs the question though with what savings? Household debt grew by one trillion in 2021. Credit card balances have also increased. If consumers had plenty of savings, why would they be using credit card debt to purchase items? Just last year this increase in household debt was seen as a recovering economy.
Let’s not forget that 81% of adults in the United States think that a recession is likely in 2022. This information was ascertained from CNBC+ acorns invest in use survey which was conducted by Momentive. The survey queried four thousand adults from March 23rd to the 24th in 2022. The poor and Republicans were more likely to think a recession was on the horizon according to the survey.
Inflation is blamed for the possibility of a recession. Prices go up in many categories and when prices go up people spend less. This could lead to businesses halting their hiring. Additionally, the Federal Reserve is going to raise interest rates which traditionally has slowed down the economy. They intend to do this to reduce inflation. The situation is ripe for stagflation which we saw in the 1970s.
What can you do to better your financial situation regardless of a recession? Paying down debt, trimming the budget back in order to deal with inflation, putting extra in emergency savings, and boosting retirement savings are all good strategies to handle the current economic woes. “It pays to take a step back and look at the positives and weigh the negatives against historical evidence,” Frick said. “If you do that with the odds of recession, they’re still relatively low, but risks are high, and uncertainty is high.”
