NEW YORK (Reuters) - The U.S. economy has entered a recession that will be more painful and drawn out than the usual downturn, the director of the Reuters/University of Michigan consumer sentiment survey said on Friday.
Inflation pressures will linger despite the retrenchment in consumer spending, complicating the task of policy-makers, the University’s Richard Curtin said in a report, citing data from industry group The Conference Board.
“This is no ordinary recession,” he said. “The aftereffects will last much longer than the typical downturn.”
He said the Conference Board’s expectations index is a strong predictor of economic contractions, and that it is currently flashing red.
With Americans getting hit with everything from a housing downturn to excess borrowing, things will get worse before they get better.
“Consumers must take more drastic steps to stabilize their finances in the midst of high fuel and food prices, stagnant incomes, and record debt,” Curtin said.
The new report adds that a rising wealth gap will, even more than usual, lead to disproportionate pain for middle- and lower-income Americans.
“Growing income inequality has insulated higher income groups to a greater extent than ever before,” the report said.
Yet the rich will not go unscathed, with the stock market’s recent slide likely taking a bite out of many an investment portfolio.
Paradoxically, worsening economic conditions will induce families to save money, reinforcing the drag on an economy that has become largely reliant on consumer spending.
“The negative impact will grow as home prices continue to fall in the year ahead,” he said.
Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama