That is the question everyone is asking: Are we about to enter a recession?
A lukewarm stock market, rising inflation and rising interest rates have made Americans less optimistic about the state of the economy. Consumer sentiment has plummeted to a record low, according to a University of Michigan study released last week, driven by frustration over high prices.
Earlier in June, the consumer price index jumped to its highest level level in 40 years. The government’s primary inflation meter saw prices rise by 8.6% in the last 12 months. And now the Fed is raising interest rates at an aggressive pace as it appears to be slowing economic activity.
To be clear: we are not in a recession, at least not yet. But signs of an economic downturn are appearing everywhere, in sectors from commodities to housing. Here’s what CNN Business reported last week:
Metal prices reached a 16-month low on Thursday after falling more than 11% in two weeks – this is bad news for investors who see copper prices as a clock for the global economy.
Copper is widely used in building materials, and it is meeting increased demand in an expanding economy. That demand disappears when the economy shrinks.
Prices soared earlier this year when Russia, which accounts for 4% of global copper production, invaded Ukraine. Traders who were worried about shortages began hoarding the metal. And now copper prices are falling.
“Copper prices are just beginning to explain the fact that global growth is slowing,” Daniel Ghali, TD Securities ‘director of commodity strategy, told CNN Business’ Julia Horowitz.
The index, published by S&P Global on Thursday, found that production in the US private sector declined “sharply” in June. Chris Williamson, chief economist at S&P Global Market Intelligence, said that manufacturers of non-essential goods are seeing a drop in orders as consumers struggle with rising prices.
The Fed’s aggressive interest rate hikes further dampen sentiment.
“Business confidence is now at a level that will typically signal an economic downturn, increasing the risk of recession,” Williamson said. CNN Business’ Julia Horowitz.
A closely followed 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 saw a fall of 14.4% since May, when consumers became increasingly worried about inflation. About 79% of these consumers said that they expected bad times for business conditions in the coming year, the highest level for that calculation since 2009.
The proportion of consumers who accused inflation of lowering their standard of living, 47% according to the June index, is only one percentage point lower than the highest level reached during the Great Recession.
“As higher prices become harder to avoid, consumers may feel they have no choice but to adjust their spending patterns, whether through replacement of goods or previous purchases,” said Joanna Hsu, director of Surveys of Consumers. “The speed and intensity with which these adjustments are made will be crucial to the path of the economy.”
The good news: Americans may find that some relief is on the way for gas prices.
The bad news: It’s because traders are betting on a recession, CNN Business’ Allison Morrow said.
When American drivers felt the pain of the pump, they began to withdraw the gas this spring, which reduced demand and lowered the price.
Although the withdrawal of demand may provide temporary relief, it also points to broader economic concerns.
“This morning’s market action has been overshadowed by recession concerns,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote earlier this week. He set the odds of a recession this year at 99% because “nothing is 100%.”
Better news: A cooling of the housing market may not harm the economy and the stock market.
Prices have risen, making homeownership out of reach for many Americans, and mortgage rates have risen following the Fed’s rate hikes and a rise in bond yields.
But Lennar, a homebuilder whose shares are down nearly 45% this year, reported better-than-expected earnings on Wednesday and a 4% increase in new home orders.
However, Lennar’s CEO remained cautious, saying in the company’s second quarter results report that it is a “complicated moment in the market.”
Despite the downturn in the housing market, experts hope that it will not spread to the economy as the housing bubble burst in 2008.
“Banks are in much better shape now, and they do not lend to people without credit or bad credit,” Michael Sheldon, chief investment officer at RDM Financial Group in Hightower, told CNN Business’ Paul R. La Monica. “If there is a recession, the impact on housing could be mild. There are not as many imbalances as we had before.”