Americans fear recession as inflation hurts their purchasing power – CNBC | Vette Leader

A customer shops at a Kroger grocery store in Houston on July 15, 2022.

Brandon Bell | Getty Images

As pundits debate whether the US is on the brink of an economic downturn, many Americans are already preparing for a recession.

As of this point, according to a poll by the Allianz Life Insurance Company of North America, 66% of Americans fear a major recession is imminent, up from 48% who said the same thing a year ago.

A major reason is that people fear high inflation, which has pushed up the prices of goods and services.

The survey found that 82% fear inflation will have a negative impact on their purchasing power over the next six months. In addition, the same proportion of respondents said they expect inflation to get worse over the next 12 months.

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Meanwhile, 71% said their wages are not keeping pace with rising spending.

(Allianz Life conducted the online survey in June and surveyed just over 1,000 people.)

Data released by the US Department of Commerce last week only fueled fears of a slowdown as gross domestic product fell for a second straight quarter, a traditional signal of a recession.

However, the White House was quick to dismiss speculation that a recession was already here, with President Joe Biden citing record-low unemployment, among other things.

Consumer spending rose 1.1% in June on rising inflation, according to government data released last week.

But as recession fears mount, this could already prompt Americans to change the way they manage their money.

Why a recession could be consumer driven

Even with the latest data, consumer spending has remained fairly flat over the past seven months, according to Jonathan Pingle, UBS’s chief US economist.

At the start of the year, households were in good shape with excessive savings and solid labor market gains. But then came high gas prices and rising interest rates.

“Overall, consumer spending has turned out to be a lot weaker than I think most people were expecting,” Pingle said. “Where we sit now is a weak point for the economy.”

The big question pundits are debating right now is whether or not the country is already in recession.

UBS’s probability model currently has a 40% probability of a recession in the next 12 months. The first-quarter GDP slowdown had some “really loud” components that backed off a strong fourth quarter in 2021, Pingle said, still not conclusive as to the reason for the quarter-on-quarter declines.

A consumer-driven recession is one way a downturn could play out in the US, according to a recent research report from UBS. Another scenario could be caused by an over-tightening of the US Federal Reserve.

If consumer spending falls, it could be a confidence shock, Pingle said. This could be due to households increasing their retirement savings as they worry about the future and put off purchases.

Of course, increasing savings and cutting back on spending are the tips generally given to people looking to limit the impact of an economic downturn on their finances.

“Pay down your debt, increase your savings and continue to contribute to your retirement savings through the ups and downs,” said Greg McBride, senior vice president and chief financial analyst at Bankrate.com.

“Long term, if you look back, you’re going to be really glad you invested in 2022,” he said.

How recession concerns differ by generation

However, Allianz Life’s latest survey found that 65% of investors say they are keeping more money out of the market than necessary for fear of losses.

The top concern of baby boomers, cited by 73%, is that they will no longer be able to afford the lifestyle they want in retirement due to rising costs. That was up from 66% who cited the concern in the first quarter.

“A downturn like this, coupled with this kind of inflation for someone who has just retired, can deplete your wealth significantly faster than you ever anticipated,” said Kelly LaVigne, vice president of consumer insights at Allianz Life.

Gen Xers’ top concern is that their income will not keep up with rising costs, cited by 75% of respondents, up from 68% in the first quarter.

That kind of downturn coupled with that kind of inflation for someone who just retired can really drain your wealth a lot quicker than you ever anticipated.

Kelly LaVigne

Vice President Consumer Insights at Allianz Life

Fewer millennials now have a financial plan to deal with rising inflation. The poll found that 56% currently have such a plan, up from 61% in the first quarter.

For all individuals, creating a financial plan can help limit the impact of economic uncertainty, LaVigne said.

“Whether you think you have enough money or not, there’s a financial advisor out there 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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