58% of Americans think we are in a recession, according to our latest Investor’s Business Daily/TIPP Poll of 1,643 Americans taken in early July.
One in five (21%) thinks we are not in a recession and another 20% are not sure.
The share of those who believe the economy is in a recession crossed 50% in June. It had been hovering below the 50% level since January 2021.
Our finding that many Americans believe we are in a recession is worrisome because self-fulfilling prophecies can affect business cycles. If consumers and businesses who hold this viewpoint cut back on spending, it could lead to a recession.
The poll also found that over two-thirds (68%) think the economy is not improving. Only one in every five believes that the economy is improving. Another 10% are unsure.
The share of those who think the economy is not improving was 58% in May, jumped to 67% in June, and remained steady in July.
The chart below summarizes Americans’ perception of the economy over time. Notice that the share of Americans who think we are in a recession has climbed for five consecutive months since February 2022. Also, since the beginning of this year, the percentage who think the economy is improving has steadily fallen below 30%.
Wages Not Keeping Up With Inflation
Only one in five (19%) say that their earnings are keeping pace with inflation. 54% believe they have not kept pace, and another 8% are unsure.
Current inflation is running at 9.1%. The U.S. has not seen such a high inflation rate in the past 40 years.
Consumer Spending
As a result of the high inflation, 75% of Americans are cutting spending to make ends meet.
Among those cutting spending, 91% are cutting eating out, and 70% are cutting grocery expenses. We recently reported that over one in every five Americans skip meals and rely on food banks due to rising food prices.
People are spending less wherever possible. 90% are cutting back on entertainment, and another 90% are staying away from buying big-ticket items. Holiday travel (89%) and memberships and subscriptions (79%) are also on the chopping block.
Consumer spending accounts for two-thirds of Gross Domestic Product (GDP). The GDP measures the value of the final goods and services produced in the U.S. (without double counting the intermediate goods and services used to produce them).
As Americans cut their expenses to cope with inflation, consumer spending decreases, leading to a contraction in the GDP.
The stock market has also been shaky as Americans saw their investments and retirement savings shrink significantly. To compensate for diminishing wealth, Americans pull back 4 cents in spending for every dollar lost.
Government Data Supports Poll Data
The government’s economic data supports our poll findings. The Bureau of Economic Analysis (BEA) monitors the nation’s GDP. The BEA reported that the real GDP decreased at an annual rate of 1.6 percent in the first quarter of 2022.
While nominal GDP reflects the raw numbers in current dollars unadjusted for inflation, real GDP adjusts the numbers by fixing the currency value and eliminating the effect of inflation.
The Atlanta Fed has a running tracker of GDP called GDPNow. Its latest estimate for the second quarter is -1.6 percent on July 19.
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is the official arbiter of recessions. The NBER’s traditional definition of a recession is a decline in economic activity that lasts more than a few months. On its website, it says, in deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration, and whether economic activity declined broadly across the economy (the diffusion of the downturn).
For practical purposes, the popular thumb rule to define a recession is two consecutive quarters of negative growth. The decline in the first quarter GDP was 1.6%, and if the Atlanta Fed’s estimate for the second quarter is correct, we are indeed in a recession.
Some economists who don’t believe we are in a recession would point to the June jobs report released on July 8, which showed the economy added a solid 372,000 jobs in June, and the unemployment rate is 3.6%. We’ll cover this topic separately in a future editorial.
Our View
We at TechnoMetrica, believe that we are already in a recession. Coupled with high inflation, we are in stagflation. The economy needs tough medicine before it can get better. There is no magic way to slay inflation without increasing interest rates. While doing so, there are going to be casualties. Look at the impact of mortgage rates on the housing market.
The volume of news about businesses cutting back on employment in anticipation of a recession has also increased.
Team Biden’s inept fiscal policy and the Fed’s misguided monetary policy are responsible for the current situation. Had the administration pursued energy independence and shown fiscal restraint, we could have possibly averted stagflation. The Fed also woke up too late in the game to recognize the inflation and tighten the monetary policy. Americans are now paying for their incompetence.
Meanwhile, let’s welcome recession 2022 and hope it’s short-lived.
This article is the third in our multi-part series on the economy. Did you read our article on how Americans cope with food costs due to increased prices? The shocking story quantifies Americans’ food challenges. The second part proposed our new method to recalibrate CPI inflation under Biden’s watch.
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