A tepid stock market, soaring inflation and rising interest rates have robbed Americans of optimism about the state of the economy. According to a survey by the University of Michigan released last week, consumer sentiment fell to a record low due to dissatisfaction with high prices.
To be clear: we are not in a recession, at least not yet. But signs of an economic downturn are appearing everywhere, from commodities to housing. Here’s what CNN Business reported last week:
Copper is widely used in building materials and is facing increased demand in a growing economy. This demand disappears when the economy contracts.
Prices soared earlier this year when Russia, which accounts for 4% of world copper production, invaded Ukraine. Traders, worried about the lack of supply, began to hoard the metal. And now copper prices are falling.
“Copper prices are just beginning to explain the fact that global growth is slowing,” said Daniel Ghali, director of commodity strategy at TD Securities, to Julia Horowitz of CNN Business.
Purchasing Managers Index
The Fed’s aggressive interest rate hike further worsens the mood.
“Business confidence is now at a level that usually heralds an economic downturn, which increases the risk of a recession,” Williamson said. Julia Horowitz CNN Business.
The June index fell 14.4% from May as consumers grow more concerned about inflation. About 79% of these consumers said they expect poor business conditions in the coming year, the highest for that number since 2009.
The percentage of consumers who blame inflation for undermining their standard of living is 47% according to the June index, just one percentage point below the all-time high reached during the Great Recession.
“As higher prices become harder to avoid, consumers may feel like they have no choice but to adjust their spending patterns, whether that be by replacing items or not shopping at all,” said Joanna Hsu, director of consumer surveys. “The speed and intensity with which these adjustments occur will be critical to the trajectory of the economy.”
The bad news: It’s because traders are betting on a recession, said Allison Morrow of CNN Business.
When American drivers felt the pain of filling up the gas station, they began ditching gasoline this spring, lowering demand and lowering the price.
While reduced demand may provide temporary relief, it also points to broader economic problems.
“Market behavior this morning is driven by recession worries,” Peter Boukvar, chief investment officer of Bleakley Advisory Group, wrote earlier this week. He put the chance of a recession this year at 99% because “nothing is 100%.”
Prices soared, making homeownership out of reach for many Americans, and mortgage rates soared after the Fed hiked rates and soared bond yields.
But Lennar, the homebuilder whose shares have fallen nearly 45% this year, reported higher-than-expected earnings on Wednesday and a 4% increase in new home orders.
However, Lennar’s CEO remained cautious, saying in the company’s second-quarter earnings report that it was “a challenging moment in the market.”
Despite the downturn in the housing market, experts hope it doesn’t spread to the economy like the housing bubble burst in 2008.
“Banks are in a much better place right now and they’re not lending to people with no credit or bad credit,” said Michael Sheldon, chief investment officer at RDM Financial Group at Hightower, Paul R. La Monica of CNN Business. “If there is a recession, the impact on housing could be moderate. There are not as many imbalances as before.”
Julia Horowitz of CNN Business, Alicia Wallace, Allison Morrow, and Paul R. La Monica contributed to this report.
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