Personal Finance

Americans Preparing For Economy To Take A Turn For The Worse

Americans are increasingly pessimistic about inflation and the future performance of the U.S. economy.

Two in three Americans surveyed (66%) believe inflation will go up in the coming weeks, according to the latest Forbes Advisor-Ipsos Consumer Confidence Biweekly Tracker. That’s a three-point increase in the last month.

It’s true that the most recent Consumer Price Index (CPI) inflation report showed a slight dip in annualized price growth in April. However, the month-over-month growth in core CPI—which strips out volatile food and energy prices—saw an alarming increase, a trend that bodes ill for the financial health of the American consumer.

Consumers Bracing for Higher Prices Despite Efforts to Curb Inflation

Consumers are growing ever more sensitive to rising prices, and most expect the inflation outlook to worsen. More than half of survey respondents (57%) believe the amount they pay in monthly bills and other regular expenses will rise.

That’s bad, because one of the factors boosting price growth is a phenomenon called inflation expectations. To put it simply, when people expect prices to continue rising, the expectation helps entrench rising prices.

Growing prices may also reflect public distrust of the Biden administration, which has been struggling to grapple with the inflation problem.

For instance, the White House released oil from U.S. strategic reserves in a bid to lower gasoline costs. But after a short-lived dip, prices at the pump are on the rise again, and are now averaging $4.48 per gallon nationwide, up 48 cents from just a month ago.

The Federal Reserve is doing its bit, too, delivering the first back-to-back interest rate hikes at subsequent FOMC meetings since 2006. The Fed is expected to keep raising rates through the end of 2022 and possibly into 2023.

The central bank faces a very challenging balancing act: It wants to raise rates quickly, but not so high as to start a recession. Fed Chair Jerome Powell thinks it’s possible, although he has also warned that it won’t happen without causing “some pain” in the process.

Certain economic indicators suggest that inflation could start abating. Consumers have racked up credit card debt, meaning they’re less likely to binge on purchases that would further fuel inflation.

According to Ron Hetrick, senior economist at Emsi Burning Glass, a labor market analytics firm, despite these positive pricing factors, consumers won’t likely see benefits from lower inflation for “several more months.”

Recession Warnings Weigh on Consumer Sentiment

Despite the Fed’s optimism that it can tighten monetary policy without tanking the economy, some Americans are less sanguine—especially when it comes to jobs.

The latest Ipsos survey shows that 40% of Americans believe unemployment will rise in the next year. Nearly two-fifths (39%) say it’s likely they, a family member or a personal acquaintance will lose their job in the next six months.

And it’s possible that some adverse economic impacts are already starting to show up in the labor market. More than one-fourth of respondents (27%) say that they’ve already lost a job in the past six months due to economic conditions.

Analysts are already warning that an economic downturn could be on the horizon. Former Fed chair Ben Barnanke, who led the central bank during the 2008 financial crisis, cautioned that the economy is inching toward stagflation—an ugly economic phenomenon that combines high inflation with a contracting economy.

Despite the warnings from experts, some Americans remain optimistic. More than half of respondents (52%) say that, compared to six months ago, they’re now more confident about job security for themselves, their family, and personal acquaintances, up one point from two weeks ago.

Survey methodology: Ipsos, which surveyed 937 respondents online on May 16 and 17, 2022, provided the results exclusively to Forbes Advisor. The survey is conducted weekly to track consumer sentiment over time, using a series of questions to determine whether consumers feel positively or negatively about the current state of the economy and where it looks to be going in the future.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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