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Consumer fears may make a recession 'self-fulfilling': Morning Brief

·Anchor/Reporter
·3-min read

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, June 29, 2022

Today's newsletter is by Brian Cheung, an anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

High prices at stores and gas pumps nationwide continue to weigh on American consumers.

And folks are quickly losing confidence in the state of the economy.

On Tuesday, The Conference Board reported its reading on consumer confidence fell to 98.7 in June. A measure of future expectations, meanwhile, declined to the lowest level in nearly a decade.

“Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. Franco added that the survey shows a “growing risk of recession” by the end of the year.

Consumer expectations dropped to a 9-year low in June as inflation weighs on the minds of American shoppers. (Source: The Conference Board)
Consumer expectations dropped to a 9-year low in June as inflation weighs on the minds of American shoppers. (Source: The Conference Board)

The Conference Board’s findings lined up with the University of Michigan’s consumer sentiment reading, which showed consumer sentiment in June falling to the lowest level ever recorded.

“While we see strong economic fundamentals preventing the U.S. economy from slipping into recession this year, continued deterioration in household confidence may cascade into weaker-than-expected consumer spending that could stall the expansion," said Mahir Rasheed, U.S. economist at Oxford Economics, in a note on Tuesday.

These overwhelmingly negative vibes among American households, in other words, may throw a wet blanket on this economic recovery.

According to The Conference Board's report, consumers — who once held no reservations about burning through excess savings built up from pandemic-era stimulus — are now considering skipping that summer vacation with rising airfares.

Retail sales unexpectedly fell in May, showing cracks in the rapid pace of consumer spending. Earlier this month, the average price of a gallon of gas topped $5 for the first time.

And businesses which may have considered hiring more people and leasing new equipment for an expansion may instead choose to scrap projects or cut staff with rising interest rates on business loans.

As John Lynch, CIO at Comerica Wealth Management, said in a recent note: "The persistent weakness in confidence surveys suggests a recessionary environment can become self-fulfilling."

Not all data, however, is definitive on whether either trend is hitting the economy all at once: durable goods orders last month showed factories chugging along as goods like vehicles and household appliances continue to see demand.

But as we wrote last week, even Fed officials are beginning to lose some optimism about the economy's fortunes in the coming months. To some, a "couple quarters" of negative GDP might now be the cost of bringing down inflation. A technical debate over what constitutes recession seems an inevitable part of this summer's economic conversation.

U.S. Federal Reserve Board Chair Jerome Powell testifies before a House Financial Services Committee hearing in Washington, U.S., June 23, 2022. REUTERS/Mary F. Calvert
U.S. Federal Reserve Board Chair Jerome Powell testifies before a House Financial Services Committee hearing in Washington, U.S., June 23, 2022. REUTERS/Mary F. Calvert

When world leaders gathered in Davos, Switzerland for the World Economic Forum, Cisco (CSCO) CEO Chuck Robbins told Yahoo Finance that we shouldn't talk ourselves into recession.

A month later, recession talk has only grown louder, and it becomes harder to see us avoiding one.

What to Watch Today

Economic calendar

  • MBA Mortgage Applications, week ended June 24 (-4.2% during prior week)

  • GDP Annualized, quarter-over-quarter, 1Q third (-1.5% expected, -1.5% prior)

  • Personal Consumption, quarter-over-quarter, 1Q third (3.1% expected, 3.1% prior)

  • GDP Price Index, quarter-over-quarter, 1Q third (8.1% expected, 8.1% prior)

  • Core PCE, quarter-over-quarter, 1Q second (5.1% expected, 5.1% prior)

Earnings

Pre-market

  • Barnes & Noble Education (BNED)

  • Bed Bath & Beyond (BBBY)

  • General Mills (GIS)

  • McCormick & Co. (MKC)

  • Paychex (PAYX)

Post-market

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