A customer shops at a Kroger grocery store on July 15, 2022 in Houston.
Brandon Bell | Getty Images
While experts debate whether the US is on the brink of an economic recession, many Americans are already preparing for one.
So far, 66 percent of Americans worry that a major recession is around the corner, compared with 48 percent who said the same a year ago, according to a survey by Allianz Life Insurance Company of North America.
One of the main reasons is that people are afraid of high inflation, which has pushed up the prices of goods and services.
The survey found 82% worry that inflation will have a negative impact on their purchasing power in the next six months. In addition, the same proportion of respondents said they expect inflation to worsen over the next 12 months.
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Meanwhile, 71% said their wages are not keeping pace with rising expenses.
(Allianz Life conducted the online survey in June and polled just over 1,000 people.)
Data released last week by the US Commerce Department only further fueled fears of a recession, with gross domestic product falling for the second consecutive quarter, a traditional sign of a recession.
However, the White House quickly dismissed speculation that a recession is already here, with President Joe Biden citing record low unemployment among other factors.
Consumer spending rose 1.1% in June on higher inflation, according to government data released last week.
However, as recession fears mount, it may already be prompting Americans to change the way they manage their money.
Why a recession could be consumer driven
Even with the latest data, consumer spending has been fairly flat over the past seven months, according to Jonathan Pingle, chief U.S. economist at UBS.
At the start of the year, households were in good shape, with excess savings and good labor market gains. But then high gas prices and rising interest rates piled up.
“Overall, it’s proven to be a much weaker trajectory for consumer spending than I think most people expected,” Pingle said. “Where we sit now is a bit dim for the economy.”
The big question that experts are debating now is whether or not the country is already in recession.
The UBS probability model currently has a 40% chance of a recession in the next 12 months. The slowdown in first-quarter GDP had some “really noisy” components, which were a rebound from a strong fourth quarter in 2021, Pingle said, making the reason for the quarterly declines still inconclusive.
A consumer-led recession is one way a recession could happen in the U.S., according to a recent UBS report. Another scenario may be caused by excessive tightening by the Federal Reserve.
If consumer spending slows, it could be a confidence shock, Pingle said. This could be caused by households increasing precautionary savings while worrying about the future and postponing purchases.
Of course, increasing savings and reducing spending is the advice generally given to people who want to limit the impact of an economic downturn on their finances.
“Pay down your debt, grow your savings, and keep making those retirement savings contributions through the ups and downs,” said Greg McBride, senior vice president and chief financial analyst at Bankrate.com.
“In the long run, when you look back, you’ll be very glad you invested in 2022,” he said.
How Recession Concerns Vary by Generation
However, the recent survey by Allianz Life found that 65% of investors say they are keeping more money than they should out of the market now because of the fear of losses.
For baby boomers, the No. 1 concern, cited by 73%, is that they won’t be able to afford the lifestyle they want in retirement because of rising costs. This was up from 66% who cited this concern in the first quarter.
“Having this type of recession coupled with this type of inflation for someone who is just retiring can deplete your assets much faster than you ever expected,” said Kelly LaVigne, vice president of consumer information at Allianz Life.
For Gen X, the biggest concern is that their income is not keeping pace with rising costs, cited by 75% of respondents, up from 68% in the first quarter.
Having this type of recession coupled with this type of inflation for someone just retiring can deplete your assets much faster than you ever expected.
Kelly LaVigne
vice president of consumer information at Allianz Life
Meanwhile, fewer millennials have a financial plan to deal with rising inflation. The survey found that 56% currently have such a plan, down from 61% in the first quarter.
For all people, creating a financial plan can help limit the effect of economic uncertainties, LaVigne said.
“Regardless of whether you think you have enough money or not, there’s a financial advisor out there that’s right for you,” LaVigne said. “And it’s never too early and it’s certainly never too late.
“Not having a plan is the worst thing you can do,” he added.
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