The recession calls are getting louder on Wall Street, but for many of the households and businesses who make up the world economy the downturn is already here.
Take Gina Palmer, who runs She Salon on Atlanta’s busy Northside Drive west of downtown. She’d ordinarily expect her business to be alive with the din of customers on a Friday morning. But on that day late last month, it was largely empty and quiet, save for a few employees. With summer break moving into full swing, her clientele is preoccupied with affording summer camps for their kids amid soaring food and gasoline costs.
“When people look at their budgets, the first thing they cut is self care,” Palmer said. “I’ve seen my clients go from having weekly appointments to bi-weekly, and my bi-weekly clients are now coming in every six weeks.”
4,000 miles away, Abbie Marshall, the landlady of The Buck Inn in the countryside of northern England, is also trying to cope with surging costs. When she took over the pub last year, she ran the numbers on a 4% inflation rate—an assumption that would normally be seen as conservative given it’s twice the Bank of England target. But now it’s above 9% and rapidly heading for double digits.
Marshall has changed the costs on her menu four times and raised the price of a pint of beer on three occasions.
For Palmer, Marshall and many others, the technical definitions of a recession—traditionally two quarters of contraction—are irrelevant.
Goldman Sachs Group Inc. economists put the risk of such a slump in the US in the next year at 30%. A Bloomberg Economics model sees a 38% chance in the same period, with the risks building beyond that time frame. But for many it already feels like it’s here. More than one-third of Americans believe the economy is now in a recession, according to a poll last month by CivicScience.
The worries among small business owners, consumers and others are illustrated by so-called Misery Indexes, which blend unemployment and inflation rates. The gauge for the US is already 12.2%, similar to levels witnessed at the start of the pandemic and in the wake of the 2008 financial crisis, according to Bloomberg Economics.
The UK is similarly elevated, and other measures echo that grim view. US consumer expectations as measured by the Conference Board have dropped to the lowest in almost a decade. Sentiment across OECD member countries has fallen for 11 straight months and hasn’t been this low since 2009.
“People are getting poorer,” said Ludovic Subran, chief economist at Allianz SE. “So this is not a recession, but it really feels and tastes like a recession.”
The reason? Prices are soaring worldwide, particularly for essential foods and fuels, eroding the spending power of families. Central banks are responding to the inflation surge, but as they push up interest rates that turns the screw on those with debts. Workers are complaining their wages aren’t keeping up with the cost of living, a frustration that’s already led to strikes in some countries.
Quite simply, people’s money is disappearing fast, and they’re worried it could get a lot worse.
And as 2022 hits the halfway mark, new worries are taking hold. Layered on top of the inflation squeeze are the mounting concerns about the outlook for economic growth, not just this year, but into 2023. That’s sparked talk of stagflation, a nasty cocktail of little to no growth—or worse—and faster than usual price increases.
The situation is a far cry from what was once expected for 2022 and beyond, which for a time included the idea of a new “Roaring Twenties.” Instead, euphoria is in short supply and the narrative is one of downgrades.
Last month, the OECD cut its outlook for 2022 global growth to 3% from 4.5%, with even slower expansion seen next year. The World Bank lowered its projections, warning of “danger” for the economy.
There’s also alarm in markets, where the S&P 500 has plunged more than 20% from its January high, and the Stoxx Europe 600 is down about 19%. The near-constant stream of warnings, along with gloomy headlines, mean there’s a chance that a recession becomes a self-fulfilling prophecy, where apprehension forces consumers and businesses to hunker down and cut back on spending. That would suck demand out of the economy, exacerbating any downturn.