This post was originally published on this site
It’s a post-pandemic paradox.
Employment is falling, even as the tech sector is shedding jobs. And most Americans say they remain confident about their job security and the broader economic outlook, a new study shows. Meanwhile, the economy is slowing down, the stock market remains tumultuous, and interest rates continue to rise.
Consumers appear to be looking at the stars. Fewer Americans (51%) believe the U.S. is in a recession compared to last November (60%), according to MassMutual’s Consumer Spending & Saving Survey released Tuesday. The survey was conducted last month among 1,000 U.S. adults.
“There are a lot of conflicting economic indicators right now,” said Ted Rossman, senior industry analyst at CreditCards.com. “I think this speaks to the K-shaped economy. People with lower incomes and lower credit scores are being hit hardest by inflation and rising rates.”
“There’s also the question of leading indicators versus lagging ones. The job market, historically, has been more of a lagging indicator. It’s also really important, of course, as employment status tends to be the biggest predictor of whether or not someone is able to pay their bills.”
Many of those polled by MassMutual also reported feeling increasingly confident that a potential recession would not adversely impact their day-to-day finances compared with last quarter (50% versus 42%). This sentiment is, however, largely driven by older generations.
The report, perhaps for some, is puzzlingly optimistic. For others, it’s a sign of U.S. confidence. “It is uplifting to see a spirit of resilience amongst the American population, despite a softening in the U.S. economy and corresponding financial uncertainty,” said Mike Fanning, head of MassMutual U.S.
“Staying vigilant by practicing sound financial habits is key to navigating this stubborn inflationary environment,” he said. “Consumers who have already taken steps to save and invest wisely may be best positioned.” Experts say that a slight cooling in inflation in recent months has helped ease worries.
As MarketWatch reporter Jeffry Bartash noted when the annual U.S. consumer price index slowed slightly to 6.4% in January: if inflation gets stuck well above the Fed’s 2% target — at 4% to 5%, for instance — the central bank could raise rates even higher than planned and keep them there for quite some time.
Consumers show signs of pulling back
But consumers are already showing signs of pulling back. More than half of Americans told MassMutual that they’re delaying purchases due to rising inflation, although fewer say they’re doing so compared to last November (55% versus 59%). And the most common purchase being delayed? Automobiles.
In fact, car manufacturers said they sold 13.9 million vehicles in 2022, down 14% on the prior year, due to a shortage of automobile parts, and increased demand for new vehicles. It was the lowest annual sales figure since 2011 when the economy was reeling from the Great Recession.
There are many other “all news is local” components to economic data, Rossman added. “The technology and media industries have been hit harder by layoffs than other sectors. But even there, we see evidence that people are finding new jobs relatively quickly in most cases.”
The job market is not a monolithic beast. More than 123,000 global technology-sector employees have been laid off since the start of 2023, according to Layoffs.fyi, as Silicon Valley shed millions of jobs added during the pandemic, and yet national unemployment languishes at 3.4%.
Housing prices also typically varies wildly from city to city and state to state, economists say. Interest rates and prices remain high, and sales fell for the 11th straight month in December. But given the double-digit percentage increase in prices over the last three years, price drops thus far are relatively minor.
“The housing market entered recession in 2023,” according to a report by Moody’s Analytics last week. House prices peaked in July and have fallen by 2% since then. But to put that “recession” in context: Prices rose more than 35% between the beginning of 2020 and mid-2022, Realtor.com said.
Economists are puzzled and divided
All of the seemingly conflicting data appears to have puzzled and divided economists. The National Association for Business Economics released their own findings last week, which showed that a majority (60%) said the U.S. had a 50/50 chance of entering a recession. Not exactly a “dead cert.”
The lack of consensus is one consistent outcome. The poll’s results reflect “significant divergence regarding the outlook for the U.S. economy,” said Julia Coronado, president and founder of MacroPolicy Perspectives LLC, and president of the National Association for Business Economics.
One critical question mark that hangs over economists: They said they were unsure about how high the Federal Reserve would raise interest rates, for how long they would remain at their peak, and when the Fed would reduce rates. The stock market remains highly sensitive to any moves or signals by the Fed.
As such, economists were also split over the subject of if or when a recession might hit the U.S., and how severe such a recession would be. Some 28% said they expected it to arrive in the first quarter of 2023, 33% cited the second quarter, while 21% of NABE economists opted for the third quarter.
The long-term impact of China’s reopening on global inflation, and the ongoing ramifications of Russia’s war in Ukraine remain big international outliers. In January, China, the world’s second-largest economy, re-opened its borders, and abandoned pandemic-era quarantine and zero-policy measures.
Still, macro-economic data and geopolitic events often obscure what’s happening in households, Bankrate’s Rossman said. “That definitely happens in the credit-card industry. Delinquencies and the debt-to-income ratio are below historical norms, even as delinquencies have been ticking up in recent quarters.”
Wise are not, Americans are spending. “We’re currently seeing record-high credit-card balances and record-high credit-card rates,” Rossman added, “yet roughly half of cardholders pay in full each month, and reap many benefits from their credit cards, such as free flights, cash back, airport-lounge access and more.”
“We’re seeing the release of pent-up demand that stacked up during the pandemic, some excess savings on households’ balance sheets — especially those with higher incomes — lingering supply-chain imbalances and changes to where and how people work,” he said. “Interesting times, for sure.”
