Risk Of Recession In U.S. Increasing, Finds Fed Research

recession 1

Just over half of states in the U.S. are struggling with slowing economic activity, which could be a signal of a looming recession, according to new research from the St. Louis Federal Reserve Bank.

The December report pointed out that typically when 26 states demonstrate falling economic numbers, it offers “reasonable confidence” the nation as a whole will go into a recession.

Twenty-seven states had declining activity in October, which is enough to point to a looming downturn, the authors of the report said, noting that 35 states suffered declines ahead of a short and sharp recession seen in the spring of 2020.

The publication followed another report, from the San Francisco Fed, which also indicated rising risk that the U.S. economy may fall into recession at some point in the coming months.

As that paper explained, unemployment rates bottom out and begin to move higher ahead of a recession in a highly reliable pattern. When this shift occurs, it signals the onset of a recession in about eight months.

The report noted that the U.S. Federal Reserve is expecting the national jobless rate to rise this year to 4.6%, adding that if the Fed’s forecast comes to pass, “such an increase would trigger a recession prediction based on the unemployment rate.”

Economists have been raising concerns lately over the prospect of the US economy sliding downward mostly due to the Fed’s forceful actions on inflation.

Federal Reserve Chairman Jerome Powell, however, said in December that he didn’t view the regulator’s current outlook as a recession prediction given the expectation that growth would remain positive.

“I do not think anyone knows whether we are going to have a recession or not and, if we do, whether it is going to be a deep one or not. I t is just, it is not knowable,” Powell said.

More Rate Hikes Predicted In Eurozone

Citing data from Eurostat, the statistical office of the EU, another report said:

Inflation in the Eurozone dropped to single digits for the first time in months in December, according to data from Eurostat, the statistical office of the EU. The data were released on Friday.

The region’s headline inflation, which includes food and energy costs, came in at 9.2% year-on-year last month, falling sharply from 10.1% in November, the data shows. Analysts attribute the slower price growth to the drop in energy costs that came on the heels of unseasonably mild weather.

However, core inflation, which excludes food and energy, spiked to a record high of 5.2%, with analysts warning that the European Central Bank (ECB) will likely continue last year’s restrictive monetary policy well into 2023.

“The ECB is likely to stick to its hawkish rhetoric in the near term despite the big falls – and likelihood of further sharp declines this year,” Franziska Palmas, senior economist at Capital Economics research group, told the Financial Times. Paul Hollingsworth, chief economist at BNP Paribas, added that 2023 “will be mostly about getting under the hood of inflation and seeing “will be mostly about getting under the hood of inflation and seeing exactly what is driving it.”

Last year, the ECB was raising the interest rate at an unprecedented pace to battle the surge in prices, hiking it from negative 0.5% in July to 2% by the end of the year. Carsten Brzeski, an economist at ING, told Bloomberg that “stubbornly high” underlying inflation will keep interest rates at higher levels following hikes in February, March, and “probably even in the second quarter,” with the regulator “moving its focus away from headline inflation to core inflation and wage growth.”

Last month, ECB President Christine Lagarde warned against focusing on short-term changes in the headline rate, as the coming months are likely to bring more price spikes.

The ECB projections for inflation this year remain well above its 2% target, averaging 6.3% by the end of the year.

UK Consumers Are Cutting Back Non-essential Spending

A survey by the consulting company KPMG finds: UK consumers intend to reduce their non-essential spending this year amid concerns about the burgeoning cost-of-living crisis.

KPMG said: Almost two-thirds of the 3,000 consumers polled said they were preparing to reduce spending on eating out, holidays, and other non-essentials due to the highest inflation in forty years. Families are most concerned about the prices of basic items, such as food, energy, fuel, and mortgage or rent costs.

A third of consumers plan to buy fewer items and resort more to own-brand and value products in 2023. The most common areas for saving on discretionary spending were listed as eating out (46%), followed by clothing (42%), and takeaways (42%).

The UK head of consumer markets, retail and leisure at KPMG, Linda Ellett, said: “Consumers are increasingly changing how they shop to save money – including switching to cheaper retailers, buying more value or promotional produce, and swapping eating out meals in.”

Stressing the uneven impact of the cost-of-living crisis on vulnerable groups of consumers, the survey showed that one in ten adults had no savings. Of those with savings, 43% said they were using them to help meet essential costs, a figure that rises to 80% among low-income households.

One in ten consumers surveyed highlighted worries about energy bills after April this year, when the UK government will reduce the amount of support for families by increasing the cap on average bills from £2,500 ($3,000) to £3,000 ($3,600) for a typical household.

More UK Retailers Risk Going Bust In 2023, Finds Study

Citing experts at credit insurance firm Atradius, a Bloomberg report said: The deepening cost-of-living crisis in the United Kingdom is likely to result in further retail failures over the year,.

Britain has seen an increase in retail collapses in 2022, including high profile insolvencies such as Joules and Made.com.

Debt collection specialists at Atradius were cited as saying a jump in claims across retailer and consumer firms in 2022 might be a signal of growing uncertainty which has resulted in other businesses launching re-financings or broad restructurings.

Erin Brookes, managing director and head of retail for Europe at Alvarez & Marsal said: Deals by Next to buy the Joules and Made.com brands could point towards further consolidation as smaller firms come under pressure from rising costs.

She told the PA news agency: “There are retailers and brands which came out of the pandemic with much weaker balance sheets and have now been hit by lower consumer sentiment, alongside any supply disruption and cost inflation.”

According to Brookes, “These will have something to offer, so some of the larger, more robust groups will definitely see opportunities around.”

She suggested: “That is likely to involve picking up business in rescue deals or even just opportunities, from other retailers or investment firms, to buy firms at what they feel is a low price given how much shares have dropped.”

The report also indicates that over the past year, online retail giants Boohoo and Asos have both seen their shares plummet over 70% amid a slowdown in demand following the reopening of stores and pressure on budgets.

Christmas could be invaluable to many retailers as they head into a potential challenging start to 2023, when there is expected to be confirmation of a recession, Brookes explained.

Pressure on the retail sector has resulted in a 71% jump in payment claims compared with 2021, which was only worse in the construction sector, according to Atradius. A number of retailers, including THG, AO World and Asos, have reportedly seen cover for their credit insurance cut throughout the year amid investor concerns, particularly in the online retail sector.

The head of commercial at Atradius UK, James Burgess waned: “We will continue to monitor post-Christmas results but having already seen a couple of large failures in Q4, 2022, we expect the negative trend to continue into 2023.”


Support Countercurrents

Countercurrents is answerable only to our readers. Support honest journalism because we have no PLANET B.
Become a Patron at Patreon

Join Our Newsletter


Join our WhatsApp and Telegram Channels

Get CounterCurrents updates on our WhatsApp and Telegram Channels

Related Posts

Join Our Newsletter

Annual Subscription

Join Countercurrents Annual Fund Raising Campaign and help us

Latest News