Recession Brewing in 2023: 8 In 10 Americans Think So Too

Recession Brewing in 2023: 8 In 10 Americans Think So Too

80% of Americans Expect 2023 to Be a Challenging Year

In 2023, it’s difficult to be optimistic about the U.S. economy. There could be economic headwinds for the U.S. this year. While Wall Street may try to convince you that the U.S. economy could only see a mild recession, the sad reality is that a severe recession is becoming a genuine possibility.


Here are some basic economics that shouldn’t be overlooked.

The U.S. economy is a consumer-based economy. Roughly 70% of the U.S. gross domestic product (GDP) consists of consumption. If consumers become pessimistic, they’ll stop spending their money, and this, in turn, will hurt the overall economy. Just before every economic crisis in the U.S., consumers had been struggling and/or becoming pessimistic. At the moment, Americans are pessimistic about the economy. That’s a sign that we could eventually see a dip in the U.S. economy.

According to recent polling by Gallup, eight in 10 American adults think 2023 will be a year of difficulty when it comes to economics. For one thing, they expect their taxes and the national deficit to both go higher. (Source: “Americans Largely Pessimistic About U.S. Prospects in 2023,” Gallup, January 3, 2022.)

There’s more:

  • Six in 10 Americans believe prices will increase at a high rate and that the stock market will fall
  • Just over half of those polled believe unemployment will increase in 2023
  • 90% of Americans believe there will be political conflict in 2023
  • 72% of those polled believe the crime rate will rise in the U.S.

Why are Americans so pessimistic about 2023? Their confidence in the U.S. economy is at its worst since the Great Recession of 2007–2009 due to 40-year-high inflation that has really hut their household financials.

Take a look at the University of Michigan Consumer Sentiment Index chart below. In June 2022, this consumer confidence measure dropped to all-time lows. It has bounced a little from those lows but remains in poor shape. Essentially, the index says American consumers are more pessimistic than they were at any time during the Great Recession!

This is all too scary.

(Source: “University of Michigan: Consumer Sentiment,” Federal Reserve Bank of St. Louis, last accessed January 3, 2023.)

While U.S. consumer confidence is in the gutter, take a look at the personal saving rate chart below. Over the past two years, the U.S. saving rate has plummeted. Near the end of 2022, Americans were saving the least amount since 2005, which was a record low—and we’re not too far from that level.

As I see it, this will act as the straw that breaks the camel’s back. Of course, by this, I mean the U.S. economy.

(Source: “Personal Saving Rate,” Federal Reserve Bank of St. Louis, last accessed January 3, 2023.)

U.S. Economic Outlook for 2023: Mild Recession Could Be Best-Case Scenario

Dear reader, I strongly believe that a perfect storm is brewing for the U.S. economy and that a severe recession could become a reality in 2023. In fact, a mild recession could be the best-case scenario for the U.S. this year.

You can thank the Federal Reserve for what’s been happening with consumer sentiment. There’s been a direct correlation between interest rates increasing and consumer sentiment dropping. The Fed has said it’s not done raising interest rates yet. So, consumer confidence could go even lower.

The worst part is that, as consumer sentiment has collapsed in the U.S., the saving rate has also collapsed in the country. This is an extremely dangerous combination for the U.S. economy. As I mentioned earlier, when consumers have a bleak outlook, they start cutting their spending (if they haven’t already), which ends up weakening the economy.

I can’t help but say, “Be very careful.” What’s brewing right now could send the economy into a downward spiral.

To investors: don’t forget there’s an economic cycle and a stock market cycle. Usually, the stock market cycle is ahead of the economic cycle. In simple terms, stock markets tend to crash and bottom before a recession shows up in the economic data. So, as things get worse, don’t be shocked if you see the stock market fall. Bottoms usually happen at times of peak uncertainty.

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