All recession warnings this week
This is the question everyone is asking: Are we about to enter a recession?
A tepid stock market, rampant inflation and rising interest rates have left Americans less than optimistic about the state of the economy. Consumer confidence plunged to a record low, according to a University of Michigan survey released last week, fueled by frustration over high prices.
Earlier in June, the consumer price index hit its highest level in 40 years. The government’s primary inflation gauge has seen prices rise by 8.6% over the past 12 months. And now the Fed is raising interest rates at an aggressive pace as it seeks to slow economic activity.
To be clear: we are not in a recession, at least not yet. But signs of an economic slowdown are appearing everywhere, in sectors ranging from commodities to housing. Here’s what CNN Business reported last week:
Metal prices hit a 16-month low on Thursday after falling more than 11% in two weeks – bad news for investors who see copper prices as an indicator of the global economy.
Copper is widely used in building materials and faces increased demand in a growing economy. This demand disappears when the economy contracts.
Prices soared earlier this year when Russia, which accounts for 4% of global copper production, invaded Ukraine. Traders worried about the shortage began to hoard the metal. And now copper prices are falling.
“Copper prices are just starting to price in slowing global growth,” Daniel Ghali, director of commodities strategy at TD Securities, told CNN Business’ Julia Horowitz.
The index released Thursday by S&P Global found that US private sector output slowed “sharply” in June. Chris Williamson, chief economist at S&P Global Market Intelligence, said producers of non-essential goods are seeing falling orders as consumers struggle with rising prices.
Aggressive interest rate hikes by the Fed further cloud the mood.
“Business confidence is now at a level that would typically herald an economic slowdown, adding to recession risk,” Williamson said. Julia Horowitz of CNN Business.
A closely watched survey by the University of Michigan released on Friday found that US consumer confidence hit a new record high in June – the lowest level since the university began collecting the data 70 years ago. year.
The June index was down 14.4% from May as consumers grew increasingly worried about inflation. About 79% of these consumers said they expected tough times for business conditions in the coming year, the highest level for this measure since 2009.
The percentage of consumers who blamed inflation for eroding their standard of living, 47% according to the June index, is only one percentage point lower than the record high reached during the Great Recession.
“As higher prices become harder to avoid, consumers may feel they have no choice but to adjust their spending habits, whether by replacing goods or foregoing purchases,” said Joanna Hsu, director of consumer surveys. “The speed and intensity at which these adjustments occur will be critical to the trajectory of the economy.”
The good news: Americans may find some relief when it comes to gas prices.
The bad news: It’s because traders are betting on a recession, said CNN Business’ Allison Morrow.
As American drivers felt the pain at the pumps, they began cutting back on gasoline this spring, reducing demand and driving down the price.
Although the decline in demand may provide temporary relief, it also points to broader economic concerns.
“This morning’s market action has recession worries written all over it,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote earlier this week. He put the odds of a recession this year at 99% because “nothing is 100%”.
Better news: a cooling housing market may not harm the economy and the stock market.
Prices soared, leaving homeownership out of reach for many Americans, and mortgage rates soared after Fed rate hikes and soaring bond yields.
But Lennar, a homebuilder whose shares have fallen nearly 45% this year, reported better-than-expected earnings on Wednesday and a 4% rise in new home orders.
Lennar’s CEO, however, remained cautious, saying in the company’s second quarter earnings release that it was a “complicated time in the market.”
Despite the slowdown in the real estate market, experts hope it won’t ripple through the economy like the bursting of the real estate bubble in 2008.
“Banks are in much better shape now, and they’re not lending to people with no credit or bad credit,” Michael Sheldon, chief investment officer at RDM Financial Group in Hightower, told Paul R. La Monica. from CNN Business. “If there is a recession, the impact on housing could be mild. There are no longer as many imbalances as before.