A warm stock market, rising inflation and rising interest rates have left Americans less optimistic about the state of the economy. Consumer sentiment has fallen to an all-time low, according to a University of Michigan survey released last week, fueled by frustration with high prices.
To be clear: we are not in recession, at least not yet. But signs of economic recession are popping up everywhere, in sectors from commodities to housing. This is what CNN Business reported last week:
Metal prices hit 16-month lows on Thursday after falling more than 11% in two weeks – this is bad news for investors who see copper prices as a benchmark for the global economy .
Copper is widely used in building materials and faces increased demand in an expanding 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 who were worried about the scarce supply began to accumulate the metal. And now, copper prices are going down.
“Copper prices are starting to explain the fact that global growth is slowing,” Daniel Ghali, director of commodity strategy at TD Securities, told Julia Horowitz of CNN Business.
Purchasing Managers Index
The index released by S&P Global on Thursday found that US private sector production slowed “fortunately” in June. Chris Williamson, chief economist at S&P Global Market Intelligence, said non-essential commodity producers are seeing a drop in orders as consumers struggle with rising prices.
Aggressive rises in Fed interest rates are further slowing the mood.
“Business confidence is now at a level that would normally herald an economic recession, increasing the risk of recession,” Williamson told Julia Horowitz of CNN Business.
Consumer sentiment
A very follow-up University of Michigan survey released Friday found that U.S. consumer sentiment hit a new record low in June, the lowest level since the university began collecting data 70 years ago.
The June index fell 14.4% since May, as consumers became increasingly alarmed by inflation. About 79% of these consumers said they expected bad times for business conditions next year, the highest level for this metric since 2009.
The percentage of consumers who blamed inflation for eroding their standard of living, 47% according to the June index, is only one percentage point lower than the all-time high reached during the Great Recession.
“As higher prices are harder to avoid, consumers may feel they have no choice but to adjust their spending patterns, either by replacing goods or previous purchases,” said Joanna Hsu, director of Surveys of Consumers. “The speed and intensity with which these adjustments occur will be critical to the trajectory of the economy.”
Gas prices
The good news: Americans might find some relief when it comes to gas prices.
The bad news: it’s because marketers are betting on a recession, said Allison Morrow of CNN Business.
When U.S. drivers felt the pain at the pump, they began withdrawing gas this spring, reducing demand and lowering the price.
While reduced demand could provide temporary relief, it also points to broader economic concerns.
“This morning’s market action has concerns about the recession written everywhere,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote earlier this week. He put the odds of a recession this year at 99% because “nothing is 100%”.
Fall of the house
Best news: A cooling real estate market may not hurt the economy and the stock market.
Prices have risen, leaving home ownership out of reach for many Americans, and mortgage rates have risen following Fed rate hikes and rising bond yields.
But Lennar, a home builder whose shares have fallen nearly 45 percent this year, reported better-than-expected gains on Wednesday and a 4 percent increase in new home orders.
Lennar’s CEO, however, remained cautious and said in the company’s second-quarter earnings statement that this is a “complicated time in the market”.
Despite the slowdown in the real estate market, experts expect it not to spread to the economy as the real estate bubble burst in 2008.
“Banks are in much better shape now and don’t give loans to people without credit or bad credit,” Michael Sheldon, RDM Financial Group’s director of investment at Hightower, told Paul R. La Monica of CNN Business. “If there is a recession, the impact on housing could be mild. There are not as many imbalances as we had before.”
Julia Horowitz, Alicia Wallace, Allison Morrow and Paul R. CNN Business’s Monica contributed to this report.