Experts Say the Country and the State of Could be Heading to a Recession Soon Because of Rising Inflation
Anyone who has read a newspaper or watched the news knows that the country and the globe are seeing high levels of inflation. In fact, the statistics show that the U.S. has seen record-high levels of inflation over the last several months.
People have also noticed high costs when they do just about anything these days from traveling to grocery shopping. There are several factors that go into the actual causes of inflation, and many experts say that the record-high numbers are due to a combination of several factors working against the economy.
In early October, Morning Consult held a webinar that discussed the state of several industries. The webinar outlined the causes of inflation in the credit, food and beverage, retail, and lodging industries.
The major takeaways of the presentation include that inflation numbers are changing the way people spend money. People are now shopping less for retail and going out to eat less. People are also investing less money than they were a year or so ago, and traveling is starting to slow down.
The Federal Reserve Banks of Minneapolis also recently held an online video seminar on the outlook of inflation in the agriculture and food markets. During the seminar, Beth Ford, President, and CEO of Land O’Lakes Inc. described why the costs of food were on the rise and what the future holds.
Ford described that there were several factors contributing to the rising costs of food including gas prices, the war between Russia and Ukraine, and the nationwide employee shortage. A panel of industry experts then described the causes of inflation in various sectors and described ways the industry is working on lowering costs in the future.
Experts Say We are Slipping into a Shallow Recession Soon
According to Gary Hovarth’s Economic Outlook and Trends Through the August 2022 presentation, the current climate of inflation shows, “The economy will slip into a shallow recession by the end of 2022 or early 2023. In addition to the near-term slowdown, there will be weak economic activity and job growth in 2023.”
Hovarth, a local economist with Summit Economics in Colorado Springs, showed rising numbers of both the consumer price index (CPI) which is an aggregate of prices paid by consumers, and the producer price index (PPI) which measures the average change over time in the selling prices received by domestic producers for their output. Hovarth points out that as long as the PPI stays over eight percent (which is the highest it has been since 2011) then the CPI will be high for both Colorado and the U.S.
Another slide in the economist’s presentation shows that the CPI during the first half of 2022 for the U.S. was 8.3 percent and for Colorado, it was 8.6 percent. Hovarth said that Colorado is seeing higher inflation rates because CPI numbers are higher for things that Coloradans spend the most money on like food, drink, healthcare, transportation, and energy.
The National Association of Home Builders (NAHB) reported last September that builder sentiment has declined every month in 2022 and the likelihood of a housing recession is showing “no signs of abating.”
“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia. “In another indicator of a weakening market, 24% of builders reported reducing home prices, up from 19% last month.”
According to the National Federation of Independent Business (NFIB), inflation remains to be the main problem for small business owners. “It will be a rough road ahead as we feel the brunt of new Fed policies designed to undo the damage done by policies that created our current inflation problems,” the NFIB reported in their August report.
Could Colorado See a Worse Recession than the Country as a Whole?
According to Hovarth, whether or not Colorado will see a worse recession than other places depends on several factors. “During the recession, the hospitality industry and the arts, entertainment, and recreation industry affected Colorado more because we have a higher concentration of those industries,” Hovarth explained. “It has not come back all the way and food costs on a national level are not back to what they used to be. If we have a late snow and the recession hits we could have a slower ski season.”
He also said that the housing industry is seeing a decline in activity due to higher interest rates and high housing prices. “So, it’s not a good time to get into a house and it makes it tough if you are moving to Colorado,” Hovarth said. “It’s tough to get into a new house and pay a higher interest rate. We got spoiled with mortgage rates in the 3 to 4 percent range.”
Could the Slowdown of Consumer Spending Prevent a Recession?
Hovarth explained that the Fed raised interest rates to try to slow down spending from the consumer to cut down demand. But, he said that some say that raising interest rates could cause other problems.
The economist said that the main problem is that there is too much money in the economy right now. He said that most economists will say that federal spending has helped create some of the issues.
Hovarth also said that even though high inflation levels have made some people change their spending habits, he doesn’t think that the small number of people who are spending less money will make a big difference in the economy.
“The way inflation affects everyone is going to be very different,” Hovarth said. “If you are lower income it is going to hit you harder than if you’re higher income. If you look at the behaviors of people, higher-income people will say, ‘we are still going to go on our trip and we are still going to go out and have a nice dinner.’ Whereas the middle class and lower will say, ‘I have a choice between eating hamburgers and making sure my kid has a coat when they go to school.’ So, you have different options, and everyone is looking at it differently.”
Since consumer spending makes up for 70 percent of the country’s growth domestic product (GDP) it will be tough for all of that consumer spending to just stop. All in all, Hovarth said that there doesn’t seem to be many people can do to prevent the upcoming recession.
[…] fact, rising food prices have proved to be one major factor that has driven record-high inflation numbers and the possibility of a recession soon. And many experts say that several things would have to happen for prices to stop rising in the […]