Inflation, consumer woe add to worries that recession is already here
There are beef trays available at a McLean grocery on June 10, 2022.
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As historic lows of consumer sentiment and blistering inflation made it clearer that the U.S. is in recession, Friday’s evidence backed up this assertion.
As if it were consumer price index increase of 8.6%It wasn’t enough to be bad news. The University of Michigan Index of Consumer Sentiment followed that announcement later in the day.
It is the most widely-used gauge of optimism registered a paltry 50.2This is the lowest survey data since 1978. It is less than the Covid crisis’s depths, and lower than any financial crisis. In fact, it was lower than 1981, when the previous inflation peak occurred.
The data taken together make it clear that the outlook isn’t good for anyone hoping the U.S. will avoid its first recession since 2020’s brief pandemic.
Peter Boockvar (chief investment officer, Bleakley Advisory Group), stated that “it would be surprising if it began in the third quarter this year.” It is possible to say we are currently in the first phase of the process. We will only know the truth in retrospect, but this should not be surprising.
It will take how long to reach your destination that official recessionIt is still a question that can only be solved with the help of time. Recent data suggests that the time for reckoning is closer than economists think.
Consumer spending is still resilient but it has come at the cost of a savings rate that has dippedLehman Brothers collapsed in September 2008 to bring down financial markets to their lowest levels since September 2008.
The first quarter’s net worth for households fell slightly. This is the first decrease in 2 years. Federal Reserve dataReleased earlier in the week. It was the highest annualized household debt gain since 2006, at 8.3%.
Atlanta Fed keeps track second-quarter GDP growth of just 0.9%. Coming after Q1’s decline of 1.5%, a further deterioration in the current period would trigger a common rule-of-thumb for a recession — two consecutive quarters of contraction.
Although a strong labor market is the primary barrier to a downturn in recent years, it has had its moments: The last week’s May nonfarm payrolls tallyWhile it was better than we expected, the gain from April 2021 to April 2021 was still small. Then Thursday was weekly jobless claims reportLast week was the most successful since January mid-January.
Wall Street still believes that an actual recession can be avoided.
Michael Kushma from Morgan Stanley, chief investment officer, global fixed-income, said that “if you look at the numbers, there’s pretty much no reason for the Fed to say, ‘This is good news.'” While I am optimistic we may be tempted by recession, with the economic downturn, I don’t think so.
Kushma admits, however that “the investment landscape is very negative” on nearly every front.
Wall Street will close for the week indeed a torrent of sellingThis includes stocks as well as bonds. It indicates both an expected path to higher interest rates and the possibility that corporate earnings will not hold their ground.
Target is a canary in Wall Street’s coal mine. offering up two recent readjustmentsIts outlook will reflect a declining shopper and burgeoning inventories, as well as declining pricing power. These trends could escalate and the US economy’s pillar of consumer spending, which accounts for nearly 70% (or $24 trillion) of its total GDP, will not be able to hold.
BlackRock’s global fixed income CIO Rick Rieder stated that “more and more corporate earnings announcements (or warnings), are indicative of a consumer in a bad mood due to the decline in net disposable and, consequently, they are drastically slowing down spending.”
Rieder fears that consumer spending will suffer the most from the recent high inflation. The Fed may be forced to make too tight policy, which could lead to job loss and increased inflation.
But, it’s clear that there is an underlying feeling somewhere else that the damage has already occurred.
Michael Hartnett, Bank of America’s chief investment strategist wrote that “we’re in technical recess but don’t know it”. This was before inflation and sentiment reports were released. He noted that the Atlanta Fed GDP estimate was only “a few bad data points away” from a’recession.
Fed officials expressed their confidence they can keep raising ratesThe economy is becoming more fragile.
Following the inflation report, markets priced in at least three consecutive half-percentage-point rate hikes — in June, July and September — and a pretty good chance of one more in November. But central bankers are unlikely to commit so far ahead, hoping the amount of work they do over the summer can reduce prices and increase the need for more severe policy tightening.
“The margin consumer isn’t going to be willing or able to continue paying these prices. Phil Orlando, Federated Hermes’ chief equity market strategist, stated that it presents greater stagflationary risks. This refers to stagnant growth and high inflation. “From a timing perspective, there is no recession calling for this year. The most likely time for a recession is 2024, according to our models.
Orlando acknowledged that the environment in which we live is difficult and suggested investing will continue to be challenging. Federated anticipates that more damage will be done in order to make a turnaround for the fall or late summer.