Is the U.S. teetering on a recession?

With stock markets fading, inflation heating up, and the Russian war in Ukraine becoming a prolonged stalemate, Americans are understandably worried about their financial prospects and the state of the U.S. economy.

The stock market suffered its biggest drop in two years on Wednesday, as large retailers acknowledged that rising prices are hurting their profits. Wall Street economists are also sounding the alarm, while a growing number of CEOs and small business owners say they expect a drop by the end of the year.

While some indications suggest that the economy remains strong, other indicators point to problems. That’s what experts say about the risk of a recession.

Why are economists worried?

The economy decreased unexpectedly in the first three months of the year, as US imports rose and exports fell.

More worryingly, the worst-hit inflation attack in decades is starting to hit retail businesses: Walmart and Target industry leaders reported disappointing gains this week, saying higher costs food, fuel and transportation they reduced their profit margins. Both cut their earnings expectations for the year. In another sign that consumers are withdrawing, Amazon reported the first quarterly loss in seven years.

Meanwhile, while the financial markets are bidding, the rich are taking their money out of stocks and storing cash to reduce their risk exposure. A recent Bank of America survey of mutual fund managers found that the share of investments they have in cash is the highest it has been in the post-9/11 period. The Wells Fargo Investment Institute expects a recession sometime next year and advises investors to invest their funds in utilities, which are considered more reliable investments.

With the technology stocks leading the general market down, technology companies that have had a great deal of hiring work over the last two years are abruptly reversing their hiring plans. Meta, Uber and Twitter have slowed or paused hiring, while Netflix, Peloton and Robinhood are firing workers.

“Decisions to cut spending, postpone expensive purchases, postpone or freeze hiring are all indicators of a possible slowdown,” John Kemp, a senior market analyst at Reuters, wrote in a recent column. “[I]f there are enough businesses and homes that behave in the [same] so the likelihood of an imminent slowdown is much higher. ”

Currently, the chances of a recession are around 30%, according to a survey by Moody’s Analytics and a Wall Street Journal economist survey.

What could cause a recession?

An important concern is that the Federal Reserve it will raise interest rates too high, too fast, drowning out economic growth.

Raising rates slows inflation by making it more expensive to borrow money, making it more expensive for consumers to spend, especially on high-value items such as housing and cars, and more expensive to borrow. in companies to grow and hire workers. But if the Fed miscalculates, a sharp rise in interest rates could shut down growth and cause a recession.

“If they act faster, they might overreact,” Alfredo Coutino, director of economic research at Moody’s Analytics, told CBS News, referring to Fed officials.

“Because inflation will be higher, interest rates will have to rise. If economic activity is hurt because the Fed is overreacting, the economy will slow down and we will [could] they have low growth and high inflation, “he said.

Global disturbances arising from the Russian war a Ukraine or COVID-19 closures in China could also have repercussions in the US, increasing the chances of a recession.

“If we have a shortage of raw materials, of agricultural products, because the Ukrainian harvest is destroyed by the war, because Russia imposes bans on grain exports … or because the policy of zero COVID in China prolongs the interruption of the Chinese economy, the US will suffer, “Coutino said.

What about “stagflation”?

High consumer prices could also slow economic growth, creating a “stagflation” situation in which prices rise faster than companies can expand. For the economy, this could lead to the worst of both worlds: slower hiring and broader economic activity along with persistent inflation.

Treasury Secretary Janet Yellen alluded to the possibility on Wednesday, noting that world food prices have soared to record highs.

“The global economic outlook is challenging and uncertain,” he said. “Rising food and energy prices are having inflationary effects, that is, depressing production and spending and raising inflation around the world.”

In the US, consumer spending is expected to slow at the end of the year, if only because the wages of many workers have not kept pace with inflation.

“That increase you’ve achieved this year is already gone,” Coutino said. “Of course, this will limit and restrict your purchasing power, and then guess what, household consumption will go down and that will put a restriction on the economy.”

Still, Coutino sees only a small possibility of stagflation, a view shared by most economists. But the slowdown in growth remains a cause for concern.

“A global staggering scenario similar to that which engulfed the world economy for much of the 1970s still seems unlikely, but the risks of a mild stagflation scenario have clearly increased in recent weeks,” said Andy Cates , Haver’s senior economist.

Why might we end up dodging a recession?

While some economic signals flicker in yellow, many more suggest that current economic expansion has ways to work. For example, industrial production rose for the fourth consecutive month in April, reaching a 15-year high and indicating that supply chain shortages are fading.

“It’s not just consumer spending that drives the economy,” Michael Pearce, a senior US economist at Capital Economics, said in a report.

And consumer spending, which accounts for two-thirds of economic activity, remains strong, with retail sales growing at a healthy pace in April and larger bank accounts than before the pandemic.

“There’s still a lot of strength in the consumer,” Christopher Rugaber, an economic journalist with the Associated Press, told CBS News. “With heavy consumer spending and steady hiring, the economy is generally in good shape right now. And we’ll see how hard it goes.”