Anyone who says that they can accurately predict where the U.S. economy will be in twelve months is no better a sage than Nostradamus.
Nonetheless, some heavyweight financiers and bankers have lately been throwing out some un-rosy projections that should scare the bejeezus out of all Americans. According to these experts, a housing crash, a stock market meltdown, a banking system failure, and/or a depression are possible or even probable within a year.
I watch YouTube a lot, particularly the pieces about cost of goods, consumer credit, housing starts, foreclosures, bank repos, the Fed’s war on inflation, and investment metrics. I also “read” the news a lot, courtesy of apps like the Associated Press, CNN, Washington Post, along with news aggregators like Yahoo and Google , which present top news stories from dozens of national and international news organizations. There’s a lot of information out there every day to be consumed and analyzed.
At the current time, most of the economic news is bad… except the jobs reports, which are put out by the Federal government, whose goal is to promote optimism about the U.S. economy. So, even though the “official” labor stats indicate that unemployment is low, that may be true or it may not be. There may be plentiful jobs, but they may be low paying ones that workers are having to settle for.
Typically, when an economy is heading toward recession, investors move from stocks into bonds. There is big uncertainty right now about when and how the country will enter a significant recession. The Fed is committed to increasing the Fed funds rate (the percentage rate that banks can borrow money) to drive down inflation (by making it more expensive for consumers to borrow). Investors can see the handwriting on the wall.
There is now an inverted yield curve, where interest rates on long term bonds (10-year) are higher than short-term (2-year). This dynamic has preceded each of the last eight U.S. recessions.
Other significant indicators:
Delinquent consumer loans have doubled in the past year, the highest amount since the 2008 Great Recession
20.5 million households are behind on their utility bills
Credit card debt is at an all-time high
A record number of people are paying $1,000/month on auto loans, some of which are 10-year loans
The bottom 20 percent of households have exhausted their savings
The S&P 500 index (a bellweather for Americans’ 401K accounts) is projected to decline at least 9 percent in 2023, following a 19 percent drop in 2022
The percentage of company CEO’s readying for America to experience a recession is 93 percent
Wall Street has been fighting the indicators for more than a year now, to no avail. The “free money” stimulus splurge Is over, as is the longest climb in Dow Jones Index history (almost 14 years), which began in the Obama Administration. Typically, the stock market re-adjusts every 8 years, so we were long overdue.
Banks are up to their ears in dicey commercial real estate and auto loans. Some are going to fail.
Housing developers are having trouble selling new homes and the biggest .homebuilders are cutting way back on “starts”
The folks who put a lot of their excess money into cryptocurrency are taking a savage beating.
It looks to me like this particular recession is going to get “real” by the end of 2023, so political candidates in 2024 will have plenty to bitch about. Whether any of them have anything useful and realistic to propose is another matter. Probably just blame-throwing, like always. Sitting Presidents always get blamed for recessions and Wall Street collapses, even though the causes are usually bad decisions in previous administrations.
Economists knew several years ago that those stimulus programs (under Trump and Biden) were necessary to soften the impact of Covid-19 on the economy but would provide jet fuel to inflationary pressures. The pandemic, coupled with the impacts of the Ukraine war, have really thrown all of the world economies for a loop. China’s problems are probably worse than ours.
The vultures have finally come home to roost; it’s time for some serious belt-tightening.