Depending on who is answering the question of whether the U.S. faces a recession, there are two groups who display pessimism. The first says a recession is coming. The other says it is already here. These groups usually target inflation as the trigger for the economic problems.
Consumer sentiment likely is driven by what people read in the media and what they pay for daily necessities. Consumer confidence data continues to be weak. A new ABC/Ipsos poll shows that “a strong majority (69%) feel the nation’s economy is getting worse, compared to just 12% who say it is getting better.” Low consumer confidence tends to drag down consumer purchases, which in turn drags on improvement of gross domestic product.
The other cause for pessimism is that people have had to pay substantially more this year for many of the things they buy daily. These are led by food and fuel and extend to clothing. Americans buy cars and homes much less frequently. Yet, their prices are also higher.
Borrowing also is becoming more expensive. Interest rates have risen from 3% for a 30-year fixed-rate mortgage last year to near 5%. However, this number has come down some recently because of falling demand for houses.
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The primary argument against a recession is low unemployment, which was at 3.5% in July, among the lowest levels in decades. The economy has replaced all the jobs lost through the course of the COVID-19 pandemic. However, for most Americans, a job is no guarantee of income that will keep pace with rising costs.
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If Americans can worry themselves into a recession, current consumer sentiment indicates that has started to happen.
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