Investors are starting to worry about a possible recession – and Main Street seems to agree, with consumer sentiment plunging this week. Justin Sullivan/Getty Images
- Morgan Stanley, UBS and Wells Fargo all said a recession became more likely last week.
- Ordinary Americans seem to agree, with consumer opinion polls plummeting.
- The Federal Reserve is raising interest rates to curb inflation, but that could slow growth.
- For more stories, go to www.BusinessInsider.co.za.
One word dominated Wall Street’s coverage of last Wednesday’s Federal Reserve meeting: recession.
Stock executives like Morgan Stanley’s Mike Wilson, economists like Wells Fargo’s Jay Bryson and billionaire investors like Leon Cooperman have all warned this week that an economic downturn is becoming more likely.
“[Rising rates] increases the risk of a recession, because you bring rate hikes forward even faster,” Wilson told CNBC’s ‘Closing Bell’ last week. The Fed is slowing down and it doesn’t really have many options. “
The Fed is raising interest rates as it seeks to tackle soaring inflation. But there is every risk that the resulting economic contraction could tip the United States into a recession – generally defined as two consecutive quarters of negative growth, accompanied by rising unemployment and a sharp slowdown in activity. commercial.
UBS became the latest bank to predict an economic slowdown on Friday.
“The more aggressive line from central banks is adding headwinds to both economic growth and equities,” said the Swiss bank’s chief investment officer, Mark Haefele. “The risks of a recession are growing, while achieving a soft landing for the US economy looks increasingly difficult.”
And away from Wall Street, ordinary Americans are also beginning to worry about the economy.
Michigan’s Consumer Confidence Index, which measures Main Street’s attitude toward the general business climate, fell sharply to a record low of 50.2 points this month, well below the initial analyst forecast of 58.
“The crash in sentiment means consumers are increasingly worried about future economic conditions,” said LPL Financial chief economist Jeffrey Roach. “Recession risks increase for next year, especially if high prices take root in the economy.”
Consumer sentiment has generally been used as an indicator of future consumer spending, which accounts for about three-quarters of gross domestic product.
The decline in consumer sentiment coincided with dire numbers coming out of the retail sector, meaning Americans are spending far less in stores and restaurants as inflation soars. Consumers tend to spend less and save more when worried about the general state of the economy, as evidenced by lower mortgage applications.
And investment bankers can learn a lot from what Main Street thinks about the economy, according to LPL’s Roach.
“We have to listen to what consumers are saying,” he said. “But more importantly, we need to monitor what consumers are doing.”