All recession warning signs this week
New York (CNN) Everyone is asking this question: Are we going to enter a recession?
Slower stock markets, rising inflation, and rising interest rates have dampened optimism about the state of the American economy. According to a University of Michigan survey released last week, frustration over higher prices has led to a record drop in consumer sentiment.
Earlier in June, the consumer price index jumped to a 40-year high. Prices have risen 8.6% in the last 12 months, according to the government’s primary inflation measure. And now the Fed is raising interest rates at an aggressive pace as it slows economic activity.
To be clear: we are not in recession, at least not yet. But there are signs of a recession everywhere from commodities to housing. Here’s what CNN Business reported last week:
Metal prices hit a 16-month low on Thursday after falling more than 11% in two weeks – which is bad news for investors who see copper prices as a bellwether for the global economy.
Copper is widely used in construction materials and is facing increasing demand in the expanding economy. That demand disappears as the economy contracts.
Prices rose earlier this year after Russia, which accounts for 4% of world copper production, invaded Ukraine. Traders concerned about low supply began to stockpile the metal. And now, copper prices are falling.
Daniel Ghali, director of the commodity strategy at TD Securities, told CNN business, Julia Horowitz, that “copper prices have started to rise because of the slowdown in global growth.”
Purchasing Manager Index
The index, released by S&P Global on Thursday, found that US private-sector output fell “sharply” in June. Chris Williamson, the chief business economist at S&P Global Market Intelligence, said orders from manufacturers of non-essential items are declining as consumers face rising prices.
The mood is worsening due to the Fed’s aggressive interest rate hike.
“Business confidence is now at a level that would normally announce an economic downturn and increase the risk of a recession,” Williamson told CNN business Julia Horowitz.
A University of Michigan survey released Friday found that U.S. consumer sentiment reached a new record low in June – the lowest recorded level since the university began collecting data 70 years ago.
The June index fell 14.4% from May as consumers became more and more worried about inflation. About 79% of them said they expect a bad time for business in the coming year, the highest level for that metric since 2009.
The percentage of consumers blaming inflation for lowering their living standards, according to the June index, is 47%, just one percentage point lower than the all-time high reached during the Great Recession.
“As rising prices become harder to avoid, consumers may feel they have no choice but to adjust their spending patterns, be it by replacing goods or by purchasing entirely,” said Joanna Hasu, director of the Survey of Consumers. “The speed and intensity with which these adjustments take place will be crucial for the economy.”
The good news: Americans may find some relief in gas prices.
The bad news: Because traders are betting on a recession, CNN Business’ Alison Morrow said.
As U.S. drivers began to feel pain at the pump, they began to pull back gas this spring, reducing demand and lowering prices.
Declining demand may provide temporary relief, but it also addresses broader economic concerns.
“The downturn concerns are written everywhere in this morning’s market action,” Peter Bookwar, chief investment officer at Blakeley Advisory Group, wrote earlier this week. He kept the probability of a recession at 99% this year because “nothing is 100%.”
The collapse of houses
The good news is that the cooling of the housing market will not hurt the economy or the stock market.
Prices have risen, homeownership has risen beyond the reach of many Americans, and mortgage rates have risen as the Fed has risen and bonds have risen.
But Lenner, whose shares are down nearly 45% this year, reported better-than-expected earnings and a 4% increase in new home orders on Wednesday.
Lenner’s CEO, however, was cautious, saying in the company’s second-quarter earnings release that it was a “critical moment in the market.”
Despite the downturn in the housing market, experts hope it will not spread to the economy in the way the housing bubble burst in 2008.