At a time when the US economy is clearly slowing and inflation remains worryingly high, a new Bankrate survey suggests that concerns about the economic outlook are top of mind for Americans.
Nearly 7 in 10 Americans (69 percent) say they are worried about the possibility of a recession before the end of next year, with 29 percent saying they are very worried and another 40 percent saying they are somewhat worried.
At the same time, more than 2 in 5 (41 percent) in the Bankrate survey feel they would be unprepared to handle a recession if it started before the end of next year. But in a positive sign, a majority of Americans (74 percent) say they are actively taking steps to prepare for an economic downturn.
These findings accompany July Commerce Department data showing the financial system shrank for two consecutive quarters, qualifying as what was long considered the technical rule of thumb for a recession. Economists, however, are amazed at that distinction amid the strongest job market in half a century, though that’s not to say Americans don’t feel like they’re living through a recession during one of the biggest blows to their spending power. in four decades.
“While some Americans indicate they believe the economy is already in a recession, it is perhaps more important that so many are already taking action based on their fears or beliefs that one is inevitable over the next year or so,” says Mark. Hamrick, Bankrate. senior economic analyst and Washington bureau chief.
Most Americans are worried about a recession by 2023
A much smaller group of Americans say they are not worried about the possibility of a recession by the end of next year, nearly 1 in 3 (31 percent). That includes the 21 percent who say they’re not too worried, along with another 9 percent who say they’re not worried at all.
How prepared Americans say they are for a recession is a big reason why they may or may not be worried. Nearly half (47 percent) of people who say they are very prepared for a recession are not worried about the possibility of a recession. That compares with 75 percent of people who say they are unprepared and worried about a recession.
Meanwhile, women were more likely than men (74 percent vs. 65 percent, respectively) to worry about a possible upcoming recession. Millennials and Generation X (73% and 72%) were also more likely to worry than their Generation Z and baby boomer counterparts, at 66% and 67%, respectively.
More than 2 in 5 would not be prepared for a recession by the end of next year
A strong sign of Americans’ ability to weather a recession, a majority (59 percent) of Americans say they would be prepared to handle a recession if it started before the end of next year, and 42 percent say they are somewhat prepared. and 17 percent say they are very prepared.
Nearly a quarter (24 percent) say they would not be very prepared for a recession, while 17 percent say they are not at all prepared.
Women, minorities, and people with lower incomes are more likely to feel unprepared for the next recession
But there were crucial disparities in who was considered ready and who was not, probably highlighting gender in the long run, racial and economic divisions that are only exacerbated in economic downturns.
Nearly half (46 percent) of black and Hispanic Americans say they would not be prepared for a recession, should it happen before the end of 2023, compared to 38 percent of white Americans. Meanwhile, women are more likely than men to say they are not prepared at all, at 20 percent versus 14 percent.
The amount of money you make is another important factor that prevents people from feeling prepared for a recession. More than half (53 percent) of those earning less than $50,000 a year say they feel unprepared for a recession, compared to:
- 32 percent of those earning between $50,000 and $79,999;
- 21 percent of those earning between $80,000 and $99,999; Y
- 24 percent earn $100,000 or more.
Educational gaps could also be part of the picture. 30 percent and 28 percent respectively of those with a graduate or four-year degree say they are unprepared for the 2023 year-end recession, compared to 46 percent of those with a diploma high school or less.
“Because not all Americans have the same level of financial resources or security, the impacts can differ greatly based on pre-recession condition,” says Hamrick. “For those living on the financial edge, the prospect or reality of losing your job can be devastating. Because many Americans live paycheck to paycheck, when there is a break in employment or income, they can find themselves in a very precarious situation, with the worst case scenario being homelessness, food insecurity or hunger.”
Nearly 3 in 4 are taking steps to prepare for a recession
The best time to prepare for a recession is often before it even starts, and only 26 percent of Americans say they’re not taking steps to prepare their finances for a recession.
The most common steps to prepare for a recession include:
- Spend less on discretionary purchases, by 47 percent;
- Save more for emergencies, at 35 percent;
- Pay off credit card debt, at 30 percent;
- Seeking additional or more stable income, at 24 percent; Y
- Save more for retirement, at 19 percent;
A smaller share, 4 percent, cited doing something else.
Younger Americans were more likely to seek additional income, with 36% for both Gen Z and Millennials compared to 24% for Gen X and 11% for Boomers. Given the continued strength of the job market, that search is more likely to be successful. Unemployment hasn’t been this low since the 1960s, while employers in June had nearly 11 million job openings.
Perhaps the biggest challenge to Americans’ wallets, 31 percent of those who consider themselves unprepared for a recession are currently doing nothing to prepare. Meanwhile, 42 percent of those who say they are totally unprepared are not taking financial action. That compares with 22 percent of those who consider themselves prepared and say they’re not taking action.
More than half say inflation will be higher a year from now than it is now
Another complex layer that poses challenges to the broader economic picture, more than half (51 percent) of Americans expect inflation to be higher a year from now. More than 1 in 5 (22 percent) say it will be much higher, while 28 percent say it will be a little higher.
Only 16 percent of Americans expect inflation to be lower a year from now.
Those beliefs could put the Fed in a tough spot, which largely views price pressures as basic psychology. Simply put, Americans who expect inflation to be higher a year from now will behave as such, possibly asking their employers for a raise or making big purchases even earlier than their initial plans.
In 2022, officials are raising interest rates at the fastest pace in decades, with no plans to slow until inflation appears to have cooled significantly. Higher inflation for longer increases the risk that the Fed will tighten even more than the financial system can handle, possibly triggering the very recession that Americans have been fearing.
A Catch-22: A substantial share of Americans saying they plan to spend less on discretionary purchases could ease inflation, but it could also have consequences for a consumer-driven economy, considering spending boosts businesses’ ability to keep hire and produce.
Taking steps to prepare your wallet for a recession is more important now than ever as the US economy faces several crucial turning points in the year ahead.
“The Fed, led by Chairman Jerome Powell, has more work to do to fight high prices as well as restore their credibility as inflation fighters,” says Hamrick. “With about half of consumers saying they are cutting back on discretionary purchases, that alone weighs on economic activity, making a contraction more likely.”
Bankrate.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. The total sample size was 2,390 adults. The fieldwork was carried out between July 27 and 29, 2022. The survey was conducted online and complies with rigorous quality standards. A non-probability based sample was employed using quotas in advance during harvest and then a weighting scheme at the end designed and tested to provide nationally representative results.