Fitch expects recession in US in Q2 2023, consumer sentiment to weaken

19 Oct '22

2 min read

Pic: Shutterstock

Robust US consumer finances will help cushion the impact of a likely recession starting in the second-quarter (Q2) next year, according to Fitch Ratings, which recently said any weakness in consumer sentiment appears to be more tied to gasoline prices than consumer spending. The demand and supply imbalance is significant—equal to nearly 2.4 per cent of the labour force.

“Fitch expects the US economy to enter genuine recession territory—albeit relatively mild by historical standards in 2Q23. The projected recession is quite similar to that of 1990-1991, which followed similarly rapid Fed tightening in 1989-1990. Nevertheless, downside risks stem from nonfinancial debt-to-GDP [gross domestic product] ratios, which are much higher now than in the 1990s,” said Olu Sonola, head of US regional economics at Fitch in a press release.

Household debt service and leverage continue to be relatively low compared with historical standards. Delinquencies across all household liabilities have also remained muted, in contrast to the elevated risks associated with consumer liabilities entering the Great Recession.

The aggregate household balance sheet is resilient despite the recent equity market correction, with real estate wealth offsetting some losses in equity holdings.

The latest US unemployment rate of 3.5 per cent is the same as pre-pandemic levels—a 50-year low, the rating agency added.

Fibre2Fashion News Desk (DS)

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