Nancy Lazar, an economist from Piper Sandler, recently revealed that she believes America is due to face a recession shortly. She pointed to rising unemployment rates in 21 states and claimed this was a sign of financial issues later in the year. Let’s take a look at what this could mean and whether her statements have any truth to them.
Twenty-One States
Employment rates have been rising in twenty-one states, and Lazar argued that we’ve seen a half-point increase over the past year in these places. Though this doesn’t sound like a lot, it actually means that more people are struggling to find work, which can cause huge problems for the economy.
The Sahm Rule
The Sahm Rule is a tool that economists use to spot trouble before it becomes too serious. According to Investopedia, the Sahm Rule shows “the early stages of a recession […] when the three-month moving average of the US unemployment rate is half a percentage point or more above the lowest three-month moving average unemployment rate over the previous 12 months.” Currently, the Sahm Rule is suggesting there may be a recession on the horizon.
A Slip in GDP
Lazar claims that if things don’t improve, the GDP may fall by about 1%. If this happens, the whole country will earn less from all the goods and services we make. This may force businesses to stop spending money and make job opportunities even more limited, which is bad news for the economy.
GDP Growth
Even so, there was an increase in America’s GDP in the last quarter of 2023, thanks to increased consumer spending on healthcare and goods, along with vehicles. Although people are worried about the economy, these figures could mean that our financial future isn’t as bad as Lazar predicted. There may not be a decline in GDP at all.
Rising Employment
She also believes that unemployment will increase from less than 4% to nearly 6% as a result of these GDP issues. Many more people will find themselves without a job, which will make it harder for families to make ends meet. Clearly, Lazar’s forecasting some difficult times ahead for the country.
Commercial Real Estate State
Unfortunately, these potential economic issues could also affect the housing market. If businesses are less willing to spend, offices and shops may lose their value. This could mean trouble for anybody who owns or invests in these properties, as they won’t be a stable source of income anymore.
The Rich Get Richer
Research shows that the rich have been getting richer since the pandemic, as stocks and home values have gone up. People with more money have seen their wealth grow even further. Sadly, it’s a different story for people who aren’t as well off, and this gap between the haves and the have-nots seems to be getting bigger.
Small Business Problems
Small business owners are also facing some tough times at the moment, too. Rising costs for practically everything means they’re spending a lot more money, while some of them are finding it harder to get a loan. According to one report, just 32% of small businesses are making the same as they were before COVID.
Consumer Confidence
Issues in the economy mean that many people are less willing to spend money. Can you blame them? Increasing prices and wages not matching make spending a lot more difficult, which hurts businesses and slows down economic growth even further. It’s a vicious cycle that’s causing all kinds of problems.
No Recession
Sadly, this does mean that if there isn’t a recession, inflation rates might stay high for a longer stretch. This means your money won’t go as far, which can cause serious problems if you’re trying to budget. It can also scare off investors and lead to the stock market suffering, and this affects the economy as a whole.
Housing Market Problems
Although America isn’t in a housing bubble like during the 2008 financial crisis, the housing market could still suffer. If fewer people can afford to buy homes because they’re out of work, this means lower prices, which makes things harder for sellers and homeowners. A drop in the market can be a direct hit to people’s net worth.
Cooling Inflation
On the plus side, a recession could mean that inflation would reduce to around 2%, which the Federal Reserve recently revealed is what it wants. This could later lead to lower interest rates that would make loans a bit cheaper. In turn, this would give people a little more breathing room, financially speaking.
More People Falling Behind
Unfortunately, the New York Federal Reserve claims that more people are falling behind on their bills. The number of late payments has increased, especially among working-class families, and many of them are relying on credit just to get by. This makes it much harder for people to catch up, which puts them even further behind.
Rising Credit Dependency
More Americans are turning to using credit and “buy now, pay later” loans to cover their expenses. Although this isn’t great for long-term financial health, many people feel it’s their only option. Relying on credit too much increases debt and also puts pressure on people to manage interest and payments increase.
Spending Terms
In slightly more positive news, data shows that personal income and consumer spending is starting to increase. Personal income rose by 0.5%, which led to a 0.8% increase in consumer spending. Unfortunately, the personal saving rate declined by 3.2%, which shows the pressure on household savings as costs continue to rise.
Narrowing Deficit
The US current account deficit decreased by 0.8% at the end of 2023. This suggests that international transactions have improved, even though it’s only by a little. It could mean that what the US earns abroad and what it spends is starting to stabilize. This is good news for everyone.
Federal and State Spending
Throughout 2023, federal and state governments spent more, which helped to improve the GDP. Officials at both levels made more investments in infrastructure and defense. This could improve the economy and may also create jobs while improving public services, although we’re yet to feel the full consequences of this spending.
Investment and Construction
Unfortunately, the number of residential homes being constructed decreased, particularly with new single-family homes. At the same time, there were fewer private inventory investments within wholesale trade industries. This could be part of bigger changes in the real estate and business industries.
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