American consumers have never been this pessimistic about the economy, with the University of Michigan consumer confidence index plunging to a record low, as soaring inflation erodes household purchasing power and threatens a cost-of-living crisis.
“While consumers still appear relatively optimistic about the stability of their incomes, their perceptions of the economy are much more strongly influenced by concerns over inflation,” Hsu said, adding that persistently high inflation is likely to push consumers to change their spending habits, including buying cheaper alternatives or cut back entirely.
“The speed and intensity at which these adjustments occur will be critical for the trajectory of the economy,” she added, which comes as a growing number of economists have put the U.S. economy on recession watch.
A number of Wall Street analysts recently upped their forecasts for a U.S. recession, with Goldman Sachs predicting a 30 percent chance of the U.S. economy contracting over the next year, up from 15 percent in an earlier projection.
“We now see recession risk as higher and more front-loaded,” Goldman economists said in a June 21 note, which came about a week after the Federal Reserve rolled out its biggest rate hike since 1994 to stem an inflationary surge.
William Dudley, the former president of the Federal Reserve Bank of New York, said in a Bloomberg op-ed this week that a recession is inevitable by the end of next year.
“We are conscious that there is a narrowing path to avoiding a recession in the U.S.,” IMF Managing Director Kristalina Georgieva told a news conference, adding that there was a high degree of uncertainty around this outlook and that surprise economic shocks could tip the U.S. economy into a contraction.
President Joe Biden and members of his administration have maintained that a recession is not “inevitable,” pointing to a tight labor market with low unemployment, around two vacancies for every job-seeker, and high savings that Americans could dip into to support spending.
