The sugar level in the United States will end, it will make life miserable

  • The stimulus of the pandemic era has disappeared and the rates are much higher. It will hurt the 2023 recession much more.
  • Households are already feeling the pressure of high inflation, slowing wage growth and falling savings.
  • Americans are unlikely to receive more aid in a 2023 recession, and as their financial cushions wear off, the pain will get worse.

The post-pandemic party of the US economy is over. Buckle up for a bad comeback.

About $ 5 trillion in government stimulus, historically low interest rates, and a series of emergency lending programs have helped the US economy emerge from its slump and stage one of the fastest revivals in modern history.

But that quick recovery came at a price. Inflation began to heat up in the spring of 2021, initially fueled by used car prices, but soon spread to the costs of gas, food and housing.

The monetary policy cops showed up for the party soon after, but it was too late now. The Federal Reserve began raising interest rates in March, making all forms of lending more expensive and holding back economic growth. Mortgages, auto loans and credit card debt became more expensive within weeks. Yet inflation rose further in the following months, and data released last week showed that a key indicator of inflation hit a four-decade high in September.

Not only has the economy not lived up to its projections this year, but the forecasts for next year’s performance are even more worrying. Experts see 2023 as characterized by even higher interest rates, still high inflation, rising unemployment and a more difficult labor market for workers.

Removing huge stimuli and switching to slower growth will be a “painful process similar to waking up the next morning with a hangover after a long and hard struggle,” said Lauren Sanfilippo, director of Bank’s Chief Investment Office. of America.

The bastions of the post-lockdown rebound are already deteriorating and, as a new recession looms, Americans look less prepared by the week.

Americans are burning their pandemic-era cash savings pillows

For starters, families aren’t as cash-filled as they were a year ago. Americans amassed a $ 2.1 trillion savings cushion during the early stages of the pandemic as spending plummeted and stimuli hit households. But they’ve already spent $ 630 billion – about a third – of that buffer, according to the Bureau of Economic Analysis.

Total savings are still well above pre-crisis levels, but the cushion is wearing off rapidly. The rate of decline has accelerated in recent months, and as inflation continues to bite into household finances, Americans will face the difficult choice between cutting back on essentials and tapping into the savings they held before the pandemic.

Their daily cash flow is also declining. Real personal disposable income per capita – what the average American can spend after taxes and inflation – remained stable at $ 45,300 in August, according to government data. While it is up from its June low, it lands in line with the trend seen since March and below the pre-pandemic high of $ 46,000.

Put simply, the average family has passed its financial peak. Americans are saving less and sinking more into their financial pillows just to get by. Once that buffer runs out, weaker savings can worsen the likely oncoming recession. Revenues will decline, companies will cut costs by firing workers, and aggregate spending will fall again.

The historically exceptional job market is likely to be on the brink

The unusually tight labor market was another boon for Americans during the recovery, but that too turned the tide. American companies are slashing their hiring plans amid rising interest rates and fears of a near-term recession. Employment growth in September remained historically strong, but continued a longer trend of increasingly slower growth. Job openings, meanwhile, have fallen more in August since the early months of the pandemic.

And as employers’ demand for work cools, workers pay too. Monthly wage increases have slowed from the rapid pace recorded earlier this year and now match the pre-crisis average. After accounting for inflation, the median worker’s weekly wage is lower than what he was taking home before the early 2020 lockups.

The Fed’s repression of inflation will cause further economic suffering

Even the historically low interest rates that helped families during the crisis are nowhere to be found as the Fed stepped up its fight against inflation. The Fed’s benchmark rate is now between 3% and 3.25%, well above the threshold at which rates limit, not stimulate, economic growth. This helped push mortgage rates to levels never seen since the mid-2000s housing bubble, and the average credit card rate is already two percentage points higher than in March.

The central bank still views its rate hikes as the best tool to cool the price hike, but until major inflation returns to earth, Americans are stuck between rising costs and rising prices. loans.

No wonder, then, that economists are almost certain that a recession will materialize in the next 12 months. A forecast by Bloomberg economists sets the odds of a downturn by October 2023 at 100%. An economist poll conducted by the Wall Street Journal saw those odds rise to 63% in October from a 49% chance in July.

Fed officials did not explicitly predict a recession, but their latest projections show growth will slow significantly next year as unemployment jumps to 4.4%.

Congress probably won’t come to the rescue in the next recession

Americans shouldn’t expect much help when the next recession hits. Inflation continues to run at a rate of 8.2% year-on-year, leaving lawmakers incredibly wary of pumping more liquidity into the economy. Republicans are also poised to take control of the House following November’s mid-term elections, further condemning the possibilities of a bipartisan stimulus bill in the event of a downturn.

Taken together, the aforementioned trends create gloomy prospects. The Fed has promised to continue raising rates until “the job is done”, ensuring that borrowing costs will rise higher and the economy will slow further. Bringing inflation to the heel is key to ushering in a healthy economic expansion. Until then, the next recession will be further exacerbated by the decline of the last recession.

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