Will the US enter a recession?

Is a recession in the forecast for The United States? It is the question many Americans are asking, as the financial health of the country appears to become more strained. Earlier this year the federal reserve raised interest rates twice, in an effort to slow inflation which is at a 40-year high. The rising interest rates mean consumers will spend more on borrowing money for things like credit cards, home or car loans. On top of that the U.S economy shrank during the first quarter of the year by 1.4 percent, that is in stark contrast to the economy growing rapidly in 2021 and that was by 5.7 percent. Now all this change has consumers trying to figure out which way is up, which seems to change by the day. Inflation at this point is of course sky high, gas and home prices are also high. The supply chain struggle has been exacerbated by the war in Ukraine, also the lockdown in China. Many are saying these are possibly the hallmarks of a recession. However, some economists do not support the theory of a possible recession in the near future.

Some economists don’t see a recession happening anytime soon, there’s still a fair amount of strength in the consumer. Americans have seen a lot of job growth, the economy has seen it. The unemployment rate is very low down at 3.6 near a 50-year low. Wages grew in the past year or two. Since the pandemic, we’ve heard employers talk about not being able to find workers and that’s led to a lot higher paychecks for a lot of people. Those paychecks aren’t completely keeping up with inflation, but for many people they do make it easier to pay these higher prices. So for now, there is a sense among economists that there is some cushion. You hear the same thing from federal reserve chair Jerome Powell, that with strong consumer spending and steady hiring the economy is in generally good shape for now. 

However, there is sort of a mixed picture because we’ve got inflation on one hand, but we do have strong consumer spending. People are seeing a little increase to their paycheck, but the cost of everything going up may catch up with consumers. Right now there’s still strong spending, but that might stop once the inflation really sticks around for too long. That is the threat. People are traveling and going out to see live music and things like that. They haven’t done these kinds of things for two years and that’s another thing that is giving some of the list lift to spending. We’ve seen some of these retailers reporting certainly very mixed, in some cases negative results, but a lot of that reflects people are to some degree pulling back on spending on goods and spending more on things like travel. Consumers also have a lot of savings coming out of the pandemic. On average, people have more savings than they did in part because they weren’t able to spend like they normally did. However those savings will also run down over time and inflation might catch up. 

There are some recession predictions for next year. That’s when we’ll see the higher interest rates from the federal reserve kick in. The impact of inflation also taking a toll. There are those who see a recession next year for sure. If we do see a recession next year as some are predicting, it wont necessarily last as long as the last recession did, which after more than a decade later it still can be felt. We all hope it won’t be nearly that bad. We’ll be starting again from a place where Americans have less debt than they did certainly in the 2008-2009 recession, when the housing bubble burst and people had significant mortgages and home values fell. That was a real drag on the economy for many years. Nowadays we can see less debt on the part of consumers and a low unemployment rate. So the hope would be that if there’s a recession, it’ll be fairly brief, not as harsh as we’ve seen before. The fed could certainly at that point slow its interest or would likely cut back interest rates in order to help the recovery. So there’s no guarantee that we are going into a recession, it’s not for sure yet.