After two years of the coronavirus pandemic, a recession and a rapid recovery, Americans are worried that the economy could quickly fall again.
About 81% of adults said they believe the U.S. economy is likely to experience a recession in 2022, according to the CNBC + Acorns Invest in You survey conducted by Momentive. The online survey of nearly 4,000 adults was conducted from March 23 to 24.
Certain groups predict a potential economic downturn more than others, the study showed. That includes Republicans who are more likely to believe there will be a recession than Democrats, as well as those who see themselves as economically disadvantaged this year than they were last year.
What a recession means
The National Bureau of Economic Research, the judge for calling recessions, defines one as “significant declines in economic activity that are spread across the economy and last more than a few months.”
The last recorded recession occurred in 2020, when the coronavirus pandemic spurred mass shutdowns and firings across the United States.
Since then, however, the US economy has experienced an astonishing recovery. The labor market has added millions of jobs back and is approaching its pre-pandemic state. In addition, wages have risen for many workers, including those in lower paid jobs.
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Because of this, many economists are not so worried that a recession is on the horizon.
“If you look at the labor market data right now, you’ll be hard pressed to find any indication of recession,” said Nick Bunker, economic research director for North America at Indeed Hiring Lab. “Maybe a relative slowdown, but it’s from really hot to just hot.”
Risks on the horizon
Although the recovery in the labor force is still going strong, there are other forces affecting consumers.
Inflation, for example, has hit many Americans hard and may hinder the economic recovery. In February, the consumer price index rose by 7.9% compared to the year, the highest since January 1982. Prices have risen in many categories such as housing, food and energy.
“Inflation is the boogeyman when it comes to recovery,” said Robert Frick, a business economist at the Navy Federal Credit Union.
This is because if prices continue to rise – as expected – people may start pulling back on spending, which may cause companies to stop hiring. The Federal Reserve is also ready to continue raising interest rates, which will slow the economy to slow inflation.
However, this is a blunt tool, according to Bunker. The central bank must be careful to cool the economy enough to bring prices down again without tipping the US into yet another recession.
There is also geopolitical uncertainty surrounding the war in Ukraine, which has contributed to rising fuel prices and is likely to continue to put pressure on the global economy. In addition, the yield curve between 2-year and 10-year US government bonds recently reversed for the first time since 2019, a signal that has preceded recessions in the past.
Still, this is not a sure sign that a recession is on the horizon, Frick said.
“Of all the things you have to worry about, I do not think the inversion of the yield curve is one of them,” he said.
What should I do now
While it may be too early for Americans to prepare for a recession, they can take steps now to improve their economic situation regardless.
It includes increased emergency savings and retirement savings as well as trimming budgets to keep spending down in the middle of inflation, which is likely to continue.
“It pays to take a step back and look at the positive and weigh the negative against historical evidence,” Frick said. “If you do it with the odds of recession, they are still relatively low, but risks are high and uncertainty is high.”
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorn.