Three key U.S. economic indicators declined in April, signifying lower confidence among Americans about future business and job conditions as well as suggesting a potential risk of recession.
In April, confidence declined among almost all income groups except for those in the $25,000 to $49,999 bracket. Households with incomes less than $25,000 and those with greater than $75,000 reported the biggest drops in confidence.
In terms of age, confidence fell among all age groups. However, consumers under the age of 35 had higher confidence than those older.
“Elevated price levels, especially for food and gas, dominated consumer’s concerns, with politics and global conflicts as distant runners-up. Average 12-month inflation expectations remained stable at 5.3 percent despite concerns about food and energy prices,” Ms. Peterson said. “Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months rose slightly in April but is still well below the May 2023 peak.”
People were also less optimistic about their family’s financial situation over the next six months.
A greater share of consumers expect interest rates to be higher over the year. Consumer intent to buy homes and big appliances—variables sensitive to interest rates—over a period of six months softened. Plans for taking a vacation fell to the lowest level since June 2023.
When consumers were asked about items they would cut spending on to save money, discretionary purchases ranked at the top, including clothing/fashion, eating away from home, vacations, and entertainment away from home. Fewer consumers said they would cut back on non-discretionary items like education, childcare, and healthcare.
US Recession Risk
The American economy showed signs of slowing down in Q1 as GDP eased to 1.6 percent, a lower rate of growth compared to 3.4 percent in Q4, 2023. The Q1 GDP also fell short of estimates of 2.5 percent growth.“We may be entering one of the most treacherous geopolitical eras since World War II. And I have written in the past about high levels of debt, fiscal stimulus, ongoing deficit spending, and the unknown effects of quantitative tightening,” he wrote.
“The impacts of these geopolitical and economic forces are large and somewhat unprecedented; they may not be fully understood until they have completely played out over multiple years.”
“The probability of recession remains elevated and will stay that way as long as Fed monetary policy remains in restrictive territory. Even so, the risk has diminished in recent months on the resilience of the economic and financial data,” said Scott Anderson, the chief U.S. economist at BMO Capital Markets.
Mike Englund, chief economist at Action Economics, pointed out that the American economy “will be increasingly at risk of a downside shock, as the expansion matures and as the stimulative effect of prior fiscal policy wears off.”
“A big question that may drive the markets and the timing of Fed rate cuts is whether consumers can continue spending at a sufficient pace to keep the economy growing,” said Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management.
“If rates stay elevated or move higher and companies are forced to issue debt with more significant financing costs, that could dampen business activity and threaten current expectations for economic growth.”