Economists across Wall Street are raising the odds of a recession in the U.S. economy, and one strategist says it may already be here — especially in the eyes of consumers.
“The state of the consumer has really deteriorated faster than we’ve ever seen in decades,” Lenore Hawkins, managing partner at Calit Advisors, said on Yahoo Finance Live (video above). “And both consumers and small businesses are basically telling us the recession is already here.”
Consumer spending makes up nearly 69% of the U.S. Gross Domestic Product (GDP). The unofficial definition of a recession is two consecutive quarters of negative GDP growth. U.S. GDP unexpectedly contracted 1.4% in Q1 2022.
Hawkins pointed to the negative correlated returns of stocks and bonds in addition to mortgage rates rising at a torrid pace as examples of pressure on consumer spending — on top of soaring inflation.
“It’s worse than we saw in the 70s, in the real estate crisis in the 80s, and even the 9/11 terrorist attack and the financial crisis in 2008 – even those were not as tough on the consumer as what we’re seeing today,” Hawkins said.
Goldman Sachs economists recently raised their recession probability forecast to 30% from 15% over the next year. Citi raised its forecast to a 50% chance. JPMorgan Chief Economist Bruce Kasman told Yahoo Finance he puts the odds at around 35%.
“I don’t think it’s the likely scenario, but it’s uncomfortably high in terms of risk,” Kasman said.
Typically, after a negative quarter, “in the next quarter, the economy bounces back up,” Hawkins said. “So far, we’re not seeing that.”