According to a poll released by Gallup this week, nearly eight out of 10 Americans believe the coming year will be one of economic difficulty compared to just two out of 10 who think 2023 will bring prosperity.
The economic anxiety comes as wages were unable to keep up with the rising cost of goods in 2022, although final figures for the year have not been released by the Bureau of Labor Statistics (BLS).
According to the BLS, average wages increased by 5.1% from December 2021 through November 2022. During that same time, the Consumer Price Index increased by 7.1%, indicating that Americans lost buying power during the year.
The Federal Reserve has increased interest rates throughout 2022 to lower inflation to around 2%. Whether the Federal Reserve continues to be aggressive with interest rate increases will largely determine whether there is a decline in the U.S. economy, according to Jerry Nicklesburg, an adjunct professor of economics at the UCLA Anderson School of Management and senior economist with the UCLA Anderson Forecast.
“We are dealing with a sequence of policies from the Federal Reserve and no one knows what they’re going to do, including the people who are going to make those decisions,” Nicklesburg said.
Nicklesburg said more aggressive rate hikes could cause a mild recession in the middle of 2023, whereas if the Federal Reserve takes a wait-and-see approach to increases, a recession would likely be avoided.
“The sense is 50/50 because we don’t know what the Fed is going to do,” he said. “And we don’t know how much of an impact those previous increases are going to have on interest rates will have. Previous economic analysis project it could take a while for those rate hikes to have an impact.”
JPMorgan also predicts that a recession is more likely than not in 2023. But the probability of the U.S. entering a recession is far from certain.
While many average Americans felt the pain of the 2008-09 recession, this recession could look different. During that recession, unemployment jumped over 10%. Economists believe the labor market will remain strong, with the unemployment rate hovering around 4% in 2023.
If I am feeling anxious, what should I do?
How you should respond to economic anxieties will depend on your financial goals for the year, according to Jeff Kreisler, head of behavioral science with JPMorgan. He said that accepting uncertainty is an important step for those feeling anxious about the economy to plan for the future.
“The first thing for people to make good decisions is to accept that it feels weird, sure, we’ve been there before, but it feels uncomfortable to not know what’s happening,” he said. “It’s okay to feel this uncertainty and this discomfort.”
He says Americans should ask themselves why they are feeling concerned about the state of the economy. He added that knowing what makes you concerned will make it easier for you to address a down year.
“Think a little bit about the specifics of your coming year, coming years and decades, and your plans,” he said. “Because if you, for instance, are concerned about an up and down year because you want to buy a house or pay for college, that’s a very different issue than if you’re concerned because you’re wanting to retire in 15 or 20 years.”
And because the job market is expected to remain strong, Kreisler said looking at different job opportunities is an option for many in 2023.
“From my perspective, it is controlling what you can control to separate this anxiety about what the markets and the unemployment rate and the things we can’t individually control, we as a bank can’t control, but instead focus on the things that you can,” he said. “Maybe it’s, 'I’ll get my resume in order just in case.' Maybe it is, 'I am going to network more for employment.'"
While you might be concerned about the economy in the short term, experts say not to lose sight of long-term goals. Kreisler said he reminds clients that investing is a long game, and that volatility subsides in the long term.
For those looking long-term, Nicklesburg said he expects 2024 to be a growth year in the U.S.
Kreisler said that creating good financial habits in lean times could carry over when things are prosperous.