After two years of the coronavirus pandemic, a recession and a rapid recovery, Americans are worried that the economy may swiftly decline once again.
Some 81% of adults said they think the U.S. economy is likely to experience a recession in 2022, according to the CNBC + Acorns Invest in You survey, conducted by Momentive. The online survey of nearly 4,000 adults was conducted from March 23 to 24.
Certain groups are anticipating a potential economic downturn more than others, the survey found. That includes Republicans, who are more likely to think there will be a recession than Democrats, as well as those who see themselves as financially worse off this year than they were last year.
What a recession means
The National Bureau of Economic Research, the arbiter of calling recessions, defines one as “significant decline in economic activity that is spread across the economy and lasts more than a few months.”
The last recorded recession took place in 2020, when the coronavirus pandemic spurred mass shutdowns and layoffs across the U.S.
Since, however, the U.S. economy has seen a stunning recovery. The labor market has added back millions of jobs and is nearing its pre-pandemic state. In addition, wages have gone up for many workers, including those in lower-paying jobs.
More from Invest in You:
Joint vs. separate accounts: What couples need to think about
Want to find financial success? Here’s how to get started
Before buying a house, here’s how to set yourself up for success
Because of this, many economists aren’t too concerned that a recession is on the horizon.
“If you look at the labor market data right now, you’d be hard pressed to find any indication of recession,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. “Maybe a relative slowdown, but that’s from really hot to just hot.”
Risks on the horizon
Even though the labor recovery is still going strong, there are other forces impacting consumers.
Inflation, for example, has hit many Americans hard and could hinder the economic recovery. In February, the consumer price index surged 7.9% on the year, the highest since January 1982. Prices have gone up in many categories such as housing, food and energy.
“Inflation is the boogeyman when it comes to recoveries,” said Robert Frick, corporate economist at the Navy Federal Credit Union.
That’s because if prices continue to climb — as they’re projected to — people may begin to pull back on spending, which could lead businesses to halt hiring. The Federal Reserve is also poised to continue to raise interest rates, which will slow down the economy to curb inflation.
This is a blunt tool, however, according to Bunker. The central bank must be careful to cool the economy enough to bring prices back down without tipping the U.S. into another recession.
There’s also geopolitical uncertainty around the war in Ukraine, which has contributed to rising fuel prices and will likely continue to pressure the global economy. In addition, the yield curve between the 2-year and 10-year U.S. Treasury bonds recently inverted for the first time since 2019, a signal that has preceded recessions in the past.
Still, this isn’t a sure sign that a recession is on the horizon, said Frick.
“Of all the things you have to worry about, I don’t think that the yield curve inverting is one of them,” he said.
What to do now
While it may be too early for Americans to prepare for a recession, they could take steps now to better their financial situation regardless.
That includes boosting emergency and retirement savings, as well as trimming budgets to keep spending down amid inflation that’s likely to continue.
“It pays to take a step back and look at the positives and weigh the negatives against historical evidence,” Frick said. “If you do that with the odds of recession, they’re still relatively low, but risks are high, and uncertainty is high.”
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox. For the Spanish version Dinero 101, click here.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
