Unemployment may be at a record low, but Americans have entered 2023 with a deeply pessimistic outlook about the economy.
In fact, 3 in 4 Americans (75%) worry there will be a recession this year, and 69% believe a recession is already here, according to a study of 1,000 Americans conducted by Clever’s sister site Real Estate Witch.
Americans aren't simply cynical about the current economy. A strong majority (80%) don’t expect the economy to improve this year, and 47% think the economy will get worse.
More than half of Americans say they’d lose everything in a recession
Talk of a recession comes up regularly at work, over coffee, and while watching the news. Data from Real Estate Witch suggests that for many Americans, simply hearing the word conjures images of destitution and despair – adding to pessimism about the economy.
The study found that more than half of Americans (55%) say they’d lose everything if the U.S. entered a recession.
A recession can be scary, but Americans’ economic ignorance may have them overhyping the personal consequences of one. About three-fourths of Americans (77%) say they know the definition of a recession, but just 15% actually do, according to the Real Estate Witch study.
A recession is a period of temporary economic decline, typically identified by a fall in GDP for two consecutive quarters. This can result in job loss and economic hardship that may make it difficult to afford basic goods and big purchases, such as a house.
However, in recent decades, a recession has not meant severe deprivation for most Americans.
Inflation fears stoke economic anxiety
Fears about a recession trace back to the country's ongoing struggle with inflation. Inflation reached a 40-year high in 2022, and more than 3 in 4 Americans (77%) worry that the cost of goods and services will continue to rise this year, according to Real Estate Witch.
The fear is that rising prices will have lasting consequences on consumers' lives, with 7 in 10 Americans expressing concern that price hikes could cause them to go into debt. Amid angst over rising prices, Americans are looking for ways to curb spending, find discounts, and save money.
Stubborn inflation is what motivated the Federal Reserve to raise interest rates and increase the cost of borrowing. More interest rate hikes are on tap for 2023, and there is widespread acknowledgement that higher interest rates could mean higher prices, depressed growth in the real estate market, and market crashes — with 80% of Americans expecting some sort of market crash this year.
Nearly half of Americans think the economy is worse now than during the Great Recession
Nearly all Americans (93%) think the economy was bad in 2022, but nearly half (44%) say the economy is worse now than during the Great Recession.
Americans’ negativity about the economy could be because of a myopic focus on present-day stress or simply a case of nostalgia — not realizing that during the Great Recession, the unemployment rate reached 10%, compared to 3.4% today.
Another theory is that the economic shock of the COVID-19 pandemic still lingers in Americans’ minds. In fact, the study found that more than half of Americans (58%) believe the economy won’t recover to pre-pandemic levels before 2024, while nearly 1 in 5 don’t think it will ever recover.
For everyday Americans, such sentiment could point to the gulf between economic statistics and lived reality. Americans’ wages are increasing, but it’s still extremely difficult to buy a home. The cost of groceries has also skyrocketed, and about two-thirds of Americans (66%) expect those prices to continue increasing in 2023.
Americans question free-market capitalism amid economic concerns
A poor economic performance has more Americans, especially the young, questioning the country’s traditional capitalistic structure.
Fewer than 1 in 4 Americans (21%) think the U.S. economy performs best under capitalism, and about 1 in 8 (12%) say socialism would be a better alternative, according to Real Estate Witch.
Skepticism about capitalism is particularly acute among young Americans. Baby boomers (41%) are nearly twice as likely as Gen Z (23%) to view capitalism favorably.
Young Americans' problems with capitalism may be because of stagnating wages, high housing costs, and growing economic inequality.
Yet the study found that Americans of all political stripes and ages want the government to be more involved: 80% of respondents, including 78% of political conservatives, believe the government should do more to help Americans afford basic goods.
Whatever economic actions the government takes in 2023, it will have to contend with Americans’ deep pessimism about the economy’s future.