4 reasons the economy looks like it's crumbling — and what to do about it - CNN

Economy

4 reasons the economy looks like it's crumbling — and what to do about it – CNN

Published

1 year ago

May 14, 2022

Harry Miller

New York (CNN Business)The American economy is super weird right now.

Pretty much anyone who wants a job can have one. The economy is so hot that prices are surging faster than at any point since the 1980s. The housing market is on fire. Consumers are spending like crazy.

Yet we keep hearing the word “recession” like it’s 2007 all over again. What gives?

The truth is that we’re probably not in recession now (although it’s possible), but there are plenty of signs that one is around the corner.

Sign 1. The Fed is hiking rates

Inflation has been rampant, and the Federal Reserve’s tool to fight surging prices lies in its ability to set interest rates higher. That makes borrowing more expensive and slows the economy down — on purpose.

The problem is the Fed was super-duper late to raising rates. Inflation was a growing concern throughout 2021, but the central bank only began hiking rates in March 2022. So the Fed needs to play catchup — and take far more drastic action than it would if it had started raising rates last year.

Last week the Fed raised rates by a half-percentage point, the biggest single rate hike in 22 years.

Fed Chair Jerome Powell said this month the central bank would continue to raise rates by half a percentage point at the conclusion of each meeting until it’s satisfied inflation is getting under control — and then the Fed would continue to raise rates by a quarter-point for a while.

The Fed is convinced it can raise rates without plunging the economy into a recession. But that so-called soft landing has proven elusive in the past, and many Wall Street banks believe the Fed will engineer a recession to overcome inflation.

Sign 2. The stock market is in sell-everything mode

Extreme fear is the predominant sentiment on Wall Street this year. CNN Business’ Fear & Greed Index is at a measly six out of 100.

After hitting record highs in early January, the stock market has lost nearly a fifth of its value — plunging stocks near bear-market territory. The Nasdaq (COMP) is already deep into a bear market. More than $7 trillion has evaporated from the stock market this year.

Concerned that higher interest rates will erode companies’ profits, investors have been heading for the exits.

That’s bad news for people’s retirement plans. It’s also unwelcome news for a number of investors who rely on the market for income, including day traders who have counted on the stock market growing in a practically straight line for the better part of the decade. And it’s not great for consumer sentiment, either.

Although a minority of Americans actively invest in the stock market, when they see a sea of red next to CNN’s ticker or on their phone screens, that has historically given people pause. Consumer sentiment dropped to its lowest level in 11 years in May.

That’s potentially bad news for the economy, because consumer spending makes up more than two-thirds of America’s gross domestic product.

Sign 3. The bond market

When investors aren’t so hot on stocks, they’ll often switch to bonds. Not this time.

Safe US government Treasuries are selling off. When bond prices fall, yields rise — and yields on the 10-year Treasury topped 3% this month for the first time since 2018.

That typically happens when the Fed hikes rates — the higher cost of borrowing makes the bonds less valuable when they mature, so a higher interest payment on the bonds (the yield) will help compensate and make them more attractive to investors.

Bonds have also sold off as the Fed has decided to unwind its massive portfolio of Treasuries that it had been purchasing since the pandemic to shore up the economy.

As bonds sold off and investors grew more fearful of an economic downturn, the gap between short-term and long-term bond yields has been shrinking. Yields on the two-year Treasury note briefly rose above those on the benchmark 10-year note in March for the first time since September 2019. That so-called yield curve inversion has preceded every recession since 1955, producing a “false positive” just one time, according to the Federal Reserve Bank of San Francisco.

Sign 4. Chaos around the globe

None of this is happening in a vacuum. Russia continues its deadly invasion of Ukraine, which has choked off supply chains and sent energy prices through the roof. China continues to lock down some of its biggest cities as Covid cases remain high. And a labor shortage has sent salaries surging and hindered the normal flow of goods around the world.

Russia continues to threaten European countries by shutting off their energy shipments, which could plunge EU economies into a recession. China’s economy has slowed dramatically as it keeps workers home as part of its zero-Covid policy.

What happens abroad could spill over to the United States, too, hurting America’s economy at the worst possible time.

What to do

OK, so a recession could be coming soon. Here’s what not to do: Panic.

Even if a recession is inevitable, there’s no telling how severe it will be. But it never hurts to plan for the worst. Here are a few ways financial advisers say you can insulate your finances from a downturn.

Lock in a new job now: With ultra-low unemployment and plenty of openings, it’s a job seeker’s market. That could change quickly in a recession.

Cash in on the housing boom: If you’ve been on the fence about selling your home, now may be the time to list. Home prices in the United States are up nearly 20% year over year, but mortgage rates are also rising, which will eventually curb demand.

Set some cash aside: It’s always a good idea to have liquid assets — cash, money market funds, etc — to cover urgent needs or unexpected emergencies.

Finally, some sage advice for any market: Don’t let your emotions get the better of you. “Stay invested, stay disciplined,” says certified financial planner Mari Adam. “History shows that what people — or even experts — think about the market is usually wrong. The best way to meet your long-term goals is just stay invested and stick to your allocation.”

— CNN Business’ Allison Morrow and Jeanne Sahadi contributed to this report.

Adblock test (Why?)

Source link

Economy

Sub-Saharan Africa Economic Growth to Slow to 2.5% in 2023, World Bank Says

Published

7 hours ago

October 4, 2023

Harry Miller

JOHANNESBURG: Sub-Saharan Africa’s economic growth is expected to slow this year, dragged down by slumps in heavyweights South Africa, Nigeria and Angola, the World Bank said on Wednesday.
Regional growth will slow to 2.5% in 2023 from 3.6% last year, the bank said in a report, before rebounding to a projected 3.7% next year and 4.1% in 2025.

In per capita terms, the region has not recorded positive growth since 2015, as African countries’ economic activity has failed to keep pace with their rapid increase in population.
Some 12 million Africans are entering the labour market each year, the World Bank wrote in its twice-yearly “Africa’s Pulse” report. But current growth patterns generate just 3 million jobs in the formal sector.

“The region’s poorest and most vulnerable people continue to bear the economic brunt of this slowdown, as weak growth translates into slow poverty reduction and poor job growth,” Andrew Dabalen, the bank’s chief economist for Africa, said.
More than half of the region’s countries – 28 out of 48 – have seen their 2023 growth forecasts revised downward from the World Bank’s April estimates.
The continent’s most developed economy, South Africa, which is facing its worst energy crisis on record, is expected to grow just 0.5% this year.

Economic growth in top oil producers Nigeria and Angola is expected to slow to 2.9% and 1.3% respectively.
Sudan, which is in the midst of a major internal armed conflict that has destroyed infrastructure and brought the economy to a standstill, is expected to be hit by a 12% contraction, the Bank said.
Excluding Sudan, regional growth would be 3.1%.
“The region is projected to contract at an annual average rate per capita of 0.1% over 2015-2025, thus marking a lost decade of growth in the aftermath of the 2014-15 plunge in commodity prices,” the report stated.
While sub-Saharan inflation is expected to ease to 7.3% this year from 9.3% in 2022, it remains above central bank targets in most countries.
Meanwhile, recent military coups in Niger and Gabon in the wake of army takeovers in Guinea, Mali and Burkina Faso, as well as armed conflicts in Democratic Republic of Congo, Ethiopia, Somalia and Sudan, have created additional risk in Africa.
And mounting debt is draining resources, with 31% of regional revenues going to interest and loan payments in 2022.

Source link

Economy

The US Economy is Now Breaking in Plain Sight – Bloomberg

Published

12 hours ago

October 4, 2023

Harry Miller

We use cookies and data to

Deliver and maintain Google services
Track outages and protect against spam, fraud, and abuse
Measure audience engagement and site statistics to understand how our services are used and enhance the quality of those services

If you choose to “Accept all,” we will also use cookies and data to

Develop and improve new services
Deliver and measure the effectiveness of ads
Show personalized content, depending on your settings
Show personalized ads, depending on your settings

If you choose to “Reject all,” we will not use cookies for these additional purposes.

Non-personalized content is influenced by things like the content you’re currently viewing, activity in your active Search session, and your location. Non-personalized ads are influenced by the content you’re currently viewing and your general location. Personalized content and ads can also include more relevant results, recommendations, and tailored ads based on past activity from this browser, like previous Google searches. We also use cookies and data to tailor the experience to be age-appropriate, if relevant.

Select “More options” to see additional information, including details about managing your privacy settings. You can also visit g.co/privacytools at any time.

Adblock test (Why?)

Source link

Economy

Central Asian economies are booming thanks to Russia: Here's why – Euronews

Published

13 hours ago

October 4, 2023

Harry Miller

We use cookies and data to

Deliver and maintain Google services
Track outages and protect against spam, fraud, and abuse
Measure audience engagement and site statistics to understand how our services are used and enhance the quality of those services

If you choose to “Accept all,” we will also use cookies and data to

Develop and improve new services
Deliver and measure the effectiveness of ads
Show personalized content, depending on your settings
Show personalized ads, depending on your settings

If you choose to “Reject all,” we will not use cookies for these additional purposes.

Select “More options” to see additional information, including details about managing your privacy settings. You can also visit g.co/privacytools at any time.

Adblock test (Why?)

Source link