It has been well reported that an economic downturn could be coming.
But the big question is when might a recession happen, and how bad could it be?
Many Americans fear an economic downturn could be as bad as the 2007 to 2009 Financial Crisis, a recent Nationwide survey of 2,000 adults found.
To that point, 68% are expecting a recession in the next six months, and 80% of those respondents expect it to be severe.
Yet, predictions from various experts are not as dire.
“We’re not expecting that,” Kathy Bostjancic, chief economist at Nationwide, said of the firm’s outlook for the U.S. economy.
A recession is typically defined as a period when gross domestic product declines for two consecutive quarters.
“We’re still in the camp that we get a recession,” she said. “We think it’s been delayed, but not canceled.”
At Raymond James, the current forecast calls for a “very, very mild” recession, according to chief economist Eugenio Aleman.
“Our biggest issue today is whether it starts in the fourth quarter of this year or the first quarter of next year,” Aleman said.
For now, the firm is leaning towards the fourth quarter, he said.
“It will all depend on how strong the slowdown in employment is,” Aleman said.
Slower employment growth expected
Friday’s new jobs numbers showed private jobs creation in June reached the lowest level since December 2020, Aleman noted.
Nonfarm payrolls rose 209,000 in June, while the unemployment rate was 3.6%, the U.S. Department of Labor said Friday.
That’s after ADP reported this week that private sector companies added 497,000 jobs in June — more than double expectations.
So far this year, the economy has created 85% of all of the jobs that were created in 2019, according to Aleman.
“Unless the economy starts to grow again, there is no reason why employment is so strong,” Aleman said.
A “very, very large slowdown in employment growth” is expected for the second half of the year, he said.
Employers have announced 458,209 job cuts so far in 2023, according to Challenger, Gray and Christmas, a 244% increase from the 133,211 cuts announced through June 2022.
Other economic indicators to take into account to gauge where the U.S. economy is headed, including new government inflation data due out next week. That may help determine whether the Federal Reserve continues to raise interest rates.
Raymond James is predicting a 1.3% growth rate for 2023 and 0.6% for 2024 — which coincides with the firm’s forecast for a “very, very mild recession,” Aleman said.
Inflation ‘really weighs on the consumer psyche’
Nationwide’s consumer survey points to shaky confidence in the American economy.
While recent bank failures may bring back echoes of the 2008 crisis, inflation is actually the bigger factor that is weighing on people’s minds, Bostjancic said.
Even if people still have steady income, they are still faced with prices that are significantly higher than they were a few years ago, she said.
“That really weighs on the consumer psyche,” Bostjancic said.
To cope with high inflation, Nationwide’s survey found more than half of respondents are eating out less, with 54%. Others said they are driving less, 37%; delaying a major purchase 32%; and relying more on credit cards, 23%.
Yet as higher interest rates make carrying debts more expensive, experts are cautioning consumers that they should strive to pay balances down rather than take on more debt.
Auto loans and credit cards may be two weak points for consumers as household budgets tighten, experts warn.
Repayment of federal student loans, set to begin in the fall, may also weigh on consumers’ ability to make discretionary purchases, Aleman noted.
To get ahead of those risks, experts recommend those who can find the wiggle room to set aside more cash to prepare for future expenses or an unexpected job loss.
While it remains to be seen whether the Federal Reserve will continue to raise rates, the increases that have already happened put savers at a significant advantage.
That includes the possibility of 5% or more interest on online savings accounts, according to Greg McBride, chief financial analyst at Bankrate.
“We haven’t seen returns like that in 15 years,” McBride said.
CNBC