A 2021 paper co-authored by Danny Blanchflower, a Dartmouth College economics professor and former BOE policy maker, said that declines in US consumer expectations gauges of 10 points or more, from either the University of Michigan or Conference Board surveys, are predictors of recessions going back to the 1980s. The Conference Board measure is down almost 30 points this year.
“The risk of a self-fulfilling recession—and one that can happen as soon as early next year—is higher than before. Even though household and business balance sheets are strong, worries about the future could cause consumers to pull back, which in turn would lead businesses to hire and invest less.”
—Anna Wong, chief US economist at Bloomberg Economics.
For the US, the National Bureau of Economic Research is the official arbiter of recessions, which it defines as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Any such declaration will usually only come well into a slump, or even after it. In the meantime, the debate rages on. Deutsche Bank AG Chief Executive Christian Sewing sees a 50% chance of a global recession, a prediction that Citigroup Inc. economists have also made. Federal Reserve Chair Jerome Powell says a US recession is a possibility, but not inevitable. Morgan Stanley economists expect a mild euro-area recession at the end of 2022.
Away from that back and forth, businesses and consumers are fretting about their finances and trying to figure out how to keep their heads above water as the pressures intensify.
Inflation was already heading higher coming into 2022 amid a post-Covid demand bump. Then Russia invaded Ukraine, energy and food costs jumped, and the world found itself dealing with soaring prices, a very unfamiliar situation after years of low inflation. Gasoline in the US topped an average of $5 per gallon for the first time last month.
Given the impact on basics, from filling the gas tank to the supermarket run, few have escaped the squeeze.
In New Mexico’s capital city, the cowboys at the annual Rodeo de Santa Fe last month were sweating the price of fuel more than mounting a 2,000-pound bull. The number of entrants in the contest fell by a third, which President Jim Butler blames on the price of gasoline. While farmers and truckers can pass along their fuel costs, “the cowboys don’t have it,” he said.
The tough times stretch to Asia too, where China’s Zero-Covid policy and lockdowns sent the world’s second-biggest economy into a tailspin, compounding the damage from a real estate slump.
In Beijing, 31-year-old Tian Lijun began the year shutting the two florists she ran. After finding work as a sales representative for a high-end medical clinic, she lost that job in May. To make ends meet, she’s taken to selling flowers at stalls in community compounds and stopped shopping for anything beyond necessities.
“There’s no way to make money nowadays. I can only manage to repay my loans, pay the rent and feed myself,” Tian said. “Forget about entertainment or any other spending.”
Many have to make even tougher decisions on simple day-to-day spending, sometimes forced to choose between the electricity bill or food. UK grocery chain Tesco Plc says shoppers are buying fewer items and trading down to cheaper own-brand versions of staples.
Just as the pandemic and its recovery proved to be k-shaped, so the next deterioration may prove similarly unequal. In the UK, a report by the Resolution Foundation think tank said that years of income stagnation have left the poorest families “brutally exposed” to the cost-of-living crunch.
Phil Storey’s recent experience as chief executive at Hammersmith & Fulham Foodbank in London is more evidence of that. With food prices up almost 9%, he’s seen an increase in demand.
“We’re seeing people who were on benefits but stable financially, people who really know how to budget, now coming to us,” Storey said. “We’re even seeing working people, those on zero-hour contracts, needing help to tide them over.”
At The Buck Inn, Marshall raises a similar concern as she tries to balance protecting her income with not driving away customers.
“The cost of goods is moving so quickly, I have to pass that on,” she said. “But at what point does my pricing become prohibitive? Does going out become so expensive that it is only for the better off?”
-With assistance from Alexandre Tanzi, Reade Pickert, Vincent Del Giudice, Steve Matthews, Zoe Schneeweiss, Yujing Liu and Maria Wood.
This article was provided by Bloomberg News.