Section 1: Slowdown in Retail Sales and Decrease in Corporate Production
Retail sales have slowed for the second consecutive month as inflation impacts household budgets. Manufacturers have cut production across a wide range of products in anticipation of an economic slowdown. The slowdown in activity is what the Federal Reserve hoped for when raising interest rates. However, it could indicate that the economy may slip into recession soon, or may already be in a recession, according to economists.
Section 2: Impact of Inflation and Financial Challenges
Consumers are buying less, and factories are shrinking their output; in other words, the economy is slowing down and may have already entered a recession. Signs of economic slowdown emerged from both ends in reports on Wednesday. Retail sales fell by 1.1% in December, as consumers cut spending in 10 of the 13 major categories tracked by the Census Bureau. Additionally, companies trimmed production, with U.S. manufacturing output decreasing by 1.3% in December, according to the Federal Reserve. Both were the second month of consecutive slowdowns.
Section 3: Inflation and Its Impact on the Economy
Inflation is partially responsible for the slowdown. Prices for goods and services have risen rapidly since 2021, putting pressure on household budgets. Consumers have depleted their savings and have been purchasing goods on credit cards to maintain their spending habits despite rising prices. However, they may not be able to sustain this for much longer. Not only that, but households’ financial situations have been negatively affected by the Federal Reserve’s war against inflation itself. The central bank has raised the benchmark interest rate by 4.25 percentage points since March, increasing borrowing costs for consumers for things like credit cards and auto loans.
Section 4: Impact of Potential Recession
The effects of the Fed’s interest rate hikes and the economic slowdown seem expected. Inflation has slowed significantly in recent months, according to consumer price data. Moreover, the Producer Price Index, which measures wholesale prices, fell by 0.5%, according to the Bureau of Labor Statistics, which could translate to lower prices on store shelves.
This data converges to reinforce warning signs of a recession at some point this year, which could mean layoffs, declining living standards, depletion of savings for many people, and other hardships. Major stock indexes fell on Wednesday as markets digested the news, with the S&P 500 declining by more than 1% during early trading.
Cooling signs in prices and a slowing economy are expected to encourage the Fed to switch anti-inflation interest rates, according to economists. Market watchers overwhelmingly expect the Fed to raise the benchmark interest rate by 25 basis points – the smallest increase since March – according to the FedWatch tool that analyzes trading data.
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Source: https://www.thebalancemoney.com/the-economy-is-slowing-down-is-recession-already-here-7096689
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