“When you’re skating on thin ice, you wonder about what it would take to push you through, and we’re on thin ice right now,” said Diane Swonk, the chief economist for KPMG.
Matthew Martin, 32, is paying more for the butter and eggs that go into the intricately decorated sugar cookies he sells as part of a home business. At the same time, his sales are falling.
“I guess people don’t have as much money to toss at cookies right now,” he said.
Mr. Martin, a single father of two, is trying to cut back on spending, but it isn’t easy. He has replaced trips to the movies with day hikes, but that means spending more on gas. He is hoping to sell his house and move into a less expensive place, but finding a house he can afford to buy has proved difficult, especially as mortgage rates have risen. He has thought about finding a conventional 9-to-5 job to pay the bills, but he would then need to pay for child care for his 4-year-old twins.
“Honestly, I’m not 100 percent sure what I’m going to do,” he said.
defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months,” and it bases its decisions on a variety of indicators — usually only months after the fact.
Some forecasters believe a recession can be avoided, if inflation cools enough that the Fed can slow interest rate increases before they take too much of a toll on hiring and spending.
Understand Inflation and How It Impacts You
The economy still has important areas of strength. Job growth has remained robust, and, despite a recent uptick in filings for unemployment insurance, there is little sign of a broad increase in job losses.
Households, in the aggregate, are sitting on trillions of dollars in savings built up earlier in the pandemic, which could allow them to weather higher prices and interest rates.
“What drives the U.S. consumer is the healthy labor market, and we should really focus on job growth to capture the turning point in this business cycle,” said Blerina Uruci, an economist at T. Rowe Price. The Labor Department will release data on July’s hiring and unemployment next week.
The lingering effects of the pandemic are making the economy’s signals harder to interpret. Americans bought fewer cars, couches and other goods in the second quarter, but forecasters had long expected spending on goods to fall as consumers shifted back toward prepandemic spending patterns. Indeed, economists argue that a pullback in spending on goods is needed to relieve pressure on overstretched supply chains.
At the same time, spending on services accelerated. That could be a sign of consumers’ resilience in the face of soaring airfares and rental car rates. Or it could merely reflect a temporary willingness to put up with high prices, which will fade along with the summer sun.
“There is going to be this element of, ‘We haven’t had a summer vacation in three years, so we’re just going to take one, no matter how much it costs,’” said Aditya Bhave, a senior economist for Bank of America. “The question is what happens after the summer.”
Avital Ungar is trying to interpret the conflicting signals in real time. Ms. Ungar operates a small business running food tours for tourists and corporate groups in San Francisco, Los Angeles and New York.
When restaurants closed and travel stopped early in the pandemic, Ms. Ungar had no revenue. She made it through by offering virtual happy hours and online cooking classes. When in-person tours came back, business was uneven, shifting with each new coronavirus variant. Ms. Ungar said demand remained hard to predict as prices rise and the economy slows.
“We’re in two different types of uncertainty,” she said. “There was the pandemic uncertainty, and then there’s the economic uncertainty right now.”
In response, Ms. Ungar has shifted her focus to higher-end tours, which she believes will hold up better than those aimed at more price-sensitive customers. And she is trying to avoid long-term commitments that could be difficult to get out of if demand cools.
“Every annual plan I’ve done in the past three years has not happened that way,” she said. “It’s really important to recognize that what worked yesterday isn’t going to work tomorrow.”
Lydia DePillis contributed reporting.
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