The U.S. economy is facing greater downward pressure

Source: People's Network

Recently, the final data released by the US Department of Commerce showed that the US real gross domestic product (GDP) increased by 2% on an annualized basis in the first quarter of this year, down 0.6% from the fourth quarter of last year. The latest data from the US Department of Labor showed that the US consumer price index (CPI) rose 3% year-on-year in June, and after excluding volatile food and energy prices, the core CPI rose 4.8% year-on-year in June, significantly higher than the Fed's long-term target of 2%. Meanwhile, U.S. job growth is showing signs of slowing. U.S. Treasury Secretary Janet Yellen said in an interview with the US media on July 9 that it is "not completely impossible" for the US economy to fall into recession because inflation remains high.

Economic resilience is being challenged

The latest data released by the American Institute for Supply Management showed that the US manufacturing purchasing managers' index (PMI) in June was 46, down 0.9 percentage points from May. Reuters reported that the US manufacturing PMI has been in contraction territory for eight consecutive months, the longest since the 2008 international financial crisis, "indicating the deepening of the manufacturing contraction." Some market participants believe that the manufacturing recession is regarded as a leading indicator of recession, and the probability of economic recession is greater after the manufacturing industry has been in the contraction range for 8 consecutive months in history. Coupled with the current slowdown in the PMI growth of the services sector, the resilience of the US economy is being challenged.

Williamson, chief business economist at S&P Global Market Intelligence, said the health of U.S. manufacturing deteriorated sharply in June, leading to a severe drop in demand for goods, heightening fears that the economy could tip into recession in the second half of the year. Consumers are becoming increasingly cautious due to the rising cost of living, rising interest rates, and growing concerns about the economic outlook. According to the Federal Reserve Bank of San Francisco study, "Running out of savings and falling real incomes will force households to start tapering spending." ”

The financial situation of U.S. companies is also deteriorating. The Federal Reserve recently disclosed in a report that due to the Fed's continuous interest rate hikes, some US companies have been heavily indebted, unwilling to use funds to buy new equipment, hire more employees and increase product production, and about 37% of US non-financial companies are about to fall into trouble.

"U.S. economic activity appears to have stalled in recent weeks, with the outlook more subdued than ever, and expectations for future growth in all jurisdictions falling slightly." The Federal Reserve's National Economic Survey released at the end of May pointed out that recent employment growth in the United States showed signs of cooling, consumers were more sensitive to prices than in the past, and economic activity in some regions showed a slight or moderate decline.

Families feel less financially secure

Stacey Coquelin, 31, is a construction project manager in Miami, Florida, USA, with two young children. Three years ago, she had scraped together enough for a down payment on a house, but the growth in childcare costs, rising inflation, and rising borrowing costs not only allowed her to exhaust the down payment, but also left her with more than $20,000 in credit card and personal loan debt. "Everything from shampoo and food to gas and childcare costs has become more expensive."

Coqueline's finances are a microcosm of the high level of debt in many U.S. households. According to a recent report released by the Federal Reserve Bank of New York, in the first quarter of 2023, US household debt reached a new record, with total debt reaching $17.05 trillion, an increase of 0.9% month-on-month. Among them, credit card debt is about to exceed $1 trillion, which means that the average American household is saddled with $10,000 in credit card debt, both of which are record-telling.

"Record high inflation in the United States has eroded the financial security of American households, leading to a surge in household debt in the United States." The Federal Reserve's 2022 State of the American Household Economic Report, released in late May, showed that inflation in the United States soared to a 40-year high in mid-2022, squeezing the living space of American households.

The US Consumer News and Business Channel recently reported that as many as 92% of Americans are cutting back on spending due to high inflation. In the past six months, high prices have caused nearly 80% of consumers to cut back on non-essential goods such as entertainment, home décor, clothing, and home appliances. Two-thirds of respondents said they also spent less on groceries, utilities and other necessities.

Since March last year, the Fed has raised interest rates 10 times in a row, which has pushed interest rates to the highest level in 16 years, and the borrowing cost of the people has increased significantly. The US media calculated that if a person owes $5,000 in debt, and repays it at the current annual interest rate of the credit card at a minimum monthly amount, the debt will take about 277 months to pay off, and pay $7,723 in interest. Amy Hanauer, executive director of the American Institute for Tax and Economic Policy, recently said that American wage earners face more challenges in terms of basic living, but the government is not doing what it can in terms of public policy.

"Inflation has squeezed Americans dry." Fox News commented that "in 2023, the debt of American households will be higher, and more and more American families will default on loans." ”

The ability to invest in key projects has declined

Real GDP growth in the United States has been negative for two consecutive quarters in the first half of 2022. Although it rebounded to 3.2% in the third quarter of last year, it fell to 2.6% in the fourth quarter and 2% in the first quarter of 2023. Many economists and industry insiders believe that the US economy is facing greater downward pressure.

In mid-June, the Fed announced a pause in raising interest rates. However, Fed Chairman Jerome Powell said that inflation in the United States is still higher than expected, and two more rate hikes are expected this year, and the possibility of consecutive rate hikes is not ruled out. Powell admitted that raising interest rates would put pressure on the U.S. economy, "I don't think a recession is the most likely scenario, but it is certainly possible." He bluntly said that it is not possible to bring the core inflation rate in the United States back to less than 2% until at least 2025.

At the same time, the 2023 Long-Term Budget Outlook report released by the Congressional Budget Office predicts that the proportion of federal government debt held by the public in fiscal 2023 as a proportion of US GDP will rise to 107% in fiscal 2029, exceeding the historical high, posing significant risks to the fiscal and economic outlook. According to the report, the share of US federal government debt held by the public in US GDP will continue to rise over the next 30 years, reaching a record 181% in fiscal 2053. Michael Peterson, CEO of the Peter Peterson Foundation in the United States, said that by 2053, interest on debt will account for 35% of fiscal revenue, creating huge fiscal holes and greatly reducing the ability of the United States to invest in key projects.

Yang Zirong, associate researcher of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, told this reporter that due to the time-lag effect and cumulative effect of monetary policy, the downward pressure of the US economy and the upward pressure of unemployment will increase in the second half of this year. At the same time, because the Fed will maintain high interest rates for a long time, the book losses caused by securities held by US commercial banks and fixed-rate mortgages issued in a low-interest rate environment are difficult to fundamentally improve in the short term, and some small and medium-sized banks may fall into bankruptcy. The commercial real estate market is also under pressure from deteriorating fundamentals and rising financing costs. Masher Rashid, senior economist at Swiss Re, believes that the US economy will see a moderate decline in the second half of this year as the lagged effects of the credit crunch and restrictive monetary policy become more apparent.

At present, the American public is not confident in the economic outlook. According to a Pew Center survey, about 70 percent of respondents believe that curbing inflation and growing the economy is the top issue facing the United States today. According to the Fox News poll, 83% of respondents have a negative view of the country's economy, 65% are worried about the US banking system, 48% of the public say that the policies of the US federal government are hurting their families, and 88% are worried about the future of the United States. The USA Today article argues that Americans are feeling about the current state of the economy in two words — frustration and uncertainty. "In the current situation, many Americans are feeling the financial pain."

People's Daily (Version 10, July 13, 2023)

Source: People's Daily - People's Daily