The economic landscape in the United States is increasingly uncertain, with consumer sentiment plunging to record lows. Unemployment expectations have surged beyond 2020 levels and are now comparable to the peak of the 2008 financial crisis. According to a recent poll conducted in May 2024, 56% of Americans believed the country was already in a recession, despite official GDP figures showing growth and the S&P 500 being up 12% year-to-date at that time.
However, fast forward to today, and consumer expectations have deteriorated even further. The median expected change in household income for the next 12 months has collapsed, reaching levels last seen during the global economic lockdowns in March 2020.
Inflation Expectations Are Soaring
Adding to consumer woes, inflation expectations are climbing at an alarming rate.
- Short-term inflation expectations: US consumers now anticipate inflation to rise to 6.0% over the next 12 months, the highest since May 2023.
- Long-term inflation expectations: Americans predict inflation to average 3.9% over the next 5–10 years, the highest in 30 years (since 1993).
- Compounding inflation: The prolonged period of high inflation continues to erode purchasing power, fueling more pessimism among consumers.
The economic uncertainty has been exacerbated by the Trump administration’s new wave of tariffs and ongoing geopolitical tensions, which are expected to further strain supply chains and drive up costs.
Business Conditions: Worst Sentiment on Record
Perhaps the most concerning indicator of economic distress is consumer sentiment about business conditions. A record-breaking 60% of Americans now expect business conditions to worsen over the next year.To put this in perspective:During the depths of the 2008 financial crisis, this figure only peaked at 42%.Current pessimism far exceeds previous economic downturns, suggesting deep-rooted concerns about the economy’s trajectory.
Market Signals: Pricing in a Recession?
While consumer confidence plummets, Wall Street is also taking note. Since the Federal Reserve began cutting rates in September 2024, the S&P 500 has fallen 2%. Historically, when the Fed pivots towards rate cuts during a recession, markets react negatively:
The S&P 500 has declined 6% within six months and 10% within a year in past recessions.
The average market return post-Fed pivot is only 1% over six months, indicating little optimism among investors.
Adding to concerns, institutional sentiment has taken a sharp bearish turn. In the March CNBC Fed Survey, which includes fund managers, strategists, and analysts, the probability of a US recession jumped to 36%, up from 23% in January.
A Perfect Storm for a Recession?
With a collapsing job market outlook, record-low consumer sentiment, rising inflation expectations, and an increasingly bearish stock market, the signs of an impending economic downturn are becoming harder to ignore.
Whether the US officially enters a recession remains to be seen, but based on both consumer and market sentiment, many Americans already believe we’re in one. If current trends persist, the US economy could be on the verge of one of the most severe downturns in recent history.
Disclaimer
This article is for informational purposes only and should not be considered financial or investment advice. The views expressed here are based on publicly available data and market trends but do not guarantee future economic outcomes. Readers are encouraged to conduct their own research or consult with a professional financial advisor before making investment decisions.
