Warning signs of a US recession: America’s K-shaped economy
The US economy is showing mixed signals, but rising debt, high prices, shrinking savings, and widening income gaps suggest possible recession risks in America.
America’s K-shaped economy is splitting into two very different paths. Households with higher income are still spending comfortably because of their savings, strong asset positions and low debt exposure. In contrast, the working-class families that are earning less are experiencing a growing amount of financial pressure in the current conditions of the United States. Families are burdened by rising credit obligations, their income is growing slower, debts are piling up, pay isn’t rising fast enough and as artificial intelligence is already decreasing jobs day by day, the people of the country need stability. For many of these households, the slowdown already feels like entering into a recession phase, even though the overall US economy still looks fine on the surface, reflecting stability.
Inflation in the United States may not be as high as last year, but the prices of essential goods and services are still expensive to fulfill daily basic needs. Rent and housing costs are up approximately 20% compared to 2020. Most working families have already run through the savings they built up during the pandemic. The price of groceries, utility expenses and other everyday items in the US costs more than they used to and it seems like it will continue to exceed historical norms.
Auto loan defaults are also increasing, especially for younger people and low-income earners. But pay raises are slowing down, which means families have less money left over after covering essentials. Inflation is also reducing the purchasing power of common American citizens, but for how long can the lower-income-earning households continue to live like this? These kinds of warning signs usually show up months before a real recession hits.
Many working-class families are spending less on non-essential items and choosing cheaper options. Local shops are seeing fewer visitors and people are eating out less in restaurants, buying fewer clothes and spending less on home items and personal services. It clearly reflects early-stage recession behavior or when a recession is starting at the bottom of the economy.
Small businesses like restaurants and salons are starting to struggle. It’s harder for small enterprises to operate on a budget and stay profitable and if it continues, they may cut staff or reduce hours. Prolonged weakness in local businesses could result in an increase in unemployment and the downfall of local economies even more.
The overall US economy still looks okay as aggregate retail and GDP data remain supported by robust spending from wealthy households. For many lower-income Americans, higher-income households are supporting the pillar of the economy, which is keeping the country looking strong, but this spending comes from a small group of wealthy people and is insufficient to counter the financial slowdown spreading across millions of other families.
