Whether you live paycheck to paycheck or you have money socked away for a rainy day, the economy is no doubt affecting your bottom line. Everything has become more expensive, from everyday necessities like bread, milk, and eggs to paper products and cleaning supplies for one’s home. In addition, gas prices have risen to record prices every day for ten days in a row. Gas is now more than $4 per gallon in all fifty states, which is also historic. Used and new vehicles cost more, and interest rates have been bumped up twice with more rate hikes to come.
Now, the stock market is tumbling on a daily basis, and economic experts say we are headed for a recession. JP Morgan released a statement on Wednesday to that effect, and Goldman Sachs has said that there is at least a thirty-five percent chance the economy will head into a recession in late 2022 or early 2023.
Stocks that are typically strong, even in an economic downturn, have tumbled over the last few days. Walmart stocked fell by 11.4 percent on Tuesday, but on Wednesday, it dipped another seven percent. Target stock fell by a whopping twenty-five percent. (This has partially been attributed to a 52 percent drop in profits during the first quarter of 2022.)
Economists believe that stocks for Walmart and Target are plummeting as a reflection of the American consumer’s plight during this tough economic time. “Consumers are being financially battered by inflation,” said Yahoo Finance. Jefferies Analyst Steph Wissink related: “Both companies are signaling that their stores are seeing strong traffic versus e-commerce. Both are seeing high costs to execute their business. Consumers are moving toward essentials versus discretionary merchandise.”
Americans are already feeling the pinch, and statistics from major retailers reflect this. Consumers are purchasing necessities because a larger portion of their budget is going to pay for gas and groceries. Businesses are raising costs to cover the higher cost of doing business.
Yahoo Finance relates that inflation has gotten out of control, and retailers like Walmart and Target are seeing huge increases in the cost of freight to get goods to their stores. Inventory, particularly for discretionary purchases such as home goods, is up since consumers aren’t putting much money towards “extras.” Unfortunately, price increases are coming – again. Consumers simply can’t take much more when attempting to stretch their budgets.
Tech companies are also taking huge blows. Netflix stock is down by seventy percent, and Meta – Facebook’s parent company – is down by 42 percent. Amazon stock is also down by twenty-five percent.
Economists define a recession as “two consecutive quarters of negative growth in gross domestic product.” Last quarter, GDP was down by -1.4 percent. Should the GDP be down once more when the second quarter in 2022, then a recession will be in full swing.
Allan Timmermann, professor of finance at UC San Diego’s Rady School of Management says that it’s not so much the economic outlook that is affecting the stockmarket, but it’s the “high level of uncertainty” that is hanging over the financial sector. The Dow, Nasdaq and S&P are all down, but the numbers should be compared to “Black Monday” in October 1987. The Dow dipped 3.6 percent on Wednesday, but, on Black Monday, the Dow fell 22 percent in a single day. During the dotcom crash, the Nasdaq went down by 76 percent. So, while the economy isn’t faring too well – and there is cause for concern – things haven’t hit those levels of negativity – yet.
Consumers should also note that recessions have taken place before, and Americans have weathered them. Bankrate says there are seven ways to “recession-proof” one’s finances during an economic downturn. First, If possible, pay down high-interest credit card balances, but be sure to reassess your individual financial situation before paying off other debts, such as a mortgage or an auto loan. Most Americans are looking for ways to cut back, and utilizing apps that offer deals or coupons could help stretch essentials such as the grocery budget. If possible, work on building an emergency fund, and don’t make any “knee-jerk” decisions when it comes to investments.