In recent times, the economy has shown alarming signs of stagflation—a toxic combination of rising consumer prices, increasing unemployment, and a sluggish economic climate. This grim trend forces individuals to work harder for diminishing returns, and, for many, the risk of job loss looms large.
The Federal Reserve’s key measure of inflation, the personal consumption expenditures (PCE) price index, indicated a 2.5 percent annualized increase in consumer prices for February. Excluding food and energy, this rate rose to 2.8 percent.
It’s important to note that the latest PCE data doesn’t account for upcoming price hikes due to Trump-era tariffs, which will inevitably drive consumer prices even higher. For instance, all products manufactured in China are now subject to a steep 54 percent tariff, meaning that your shopping bills at stores like Walmart and Target could rise significantly.
Unfortunately, these price increases are hitting consumers at a particularly detrimental time. Many individuals are already feeling financially strained.
Specifically, consumer spending rose by only 0.4 percent in February, following a 0.3 percent decrease in January. This marks the weakest two-month performance since the 2020 pandemic.
Consumer spending typically comprises over two-thirds of overall economic activity, and a slowdown in this area spells trouble for the economy. When consumer spending declines, unemployment typically rises, leading to a vicious cycle of reduced growth and further job losses.
This chain reaction is the reality facing American workers and consumers, and it should come as little surprise.
Serious Delinquency
American consumers have been stretched to their limits for quite some time. A survey by Bankrate revealed that 37 percent of respondents dipped into their emergency savings over the past year, with 80 percent of that amount spent on essential needs like bills and groceries.
Emergency savings, by definition, are intended for unexpected expenses—like vehicle repairs, medical emergencies, or major appliance failures. Using these funds for regular bills signifies deeper systemic issues. Additionally, the surge in credit card delinquencies—payments over 90 days past due—has reached levels typically associated with economic recessions.
As reported by the New York Fed, Americans are currently burdened with a record $1.2 trillion in credit card debt. In the last quarter of 2024, the proportion of credit card balances overdue by 90 days or more climbed to 11.35 percent, the highest rate seen since late 2011.
This indicates that many credit card holders are failing to make even the minimum payments, jeopardizing their credit scores and future borrowing potential.
Rising inflation, increasing layoffs, and mounting credit defaults weave a troubling narrative, all pointing toward stagflation and the onset of recession.
#RecessionIndicator
Goldman Sachs has recently increased its assessment of the probability of a U.S. recession to 35 percent, attributing its forecast to the burden consumers will face from elevated tariffs. Meanwhile, JPMorgan has raised the likelihood to 40 percent for similar reasons.
These forecasts may not fully grasp the recession’s actual risks; realistically, the odds could well exceed those numbers. Indeed, the U.S. economy may already be in a recession.
CNBC’s latest projection, based on a survey of 14 economists, anticipates a mere 0.3 percent GDP growth for the first quarter—barely keeping afloat, and this is prior to the impact of Trump’s tariffs.
Once the repercussions of these tariffs filter through to prices and supply chains, a contraction is likely. When the economy contracts for two consecutive quarters, that will officially mark a recession.
Meanwhile, members of Gen Z and young millennials have taken to social media to share their observations of signs of recession, tagging their posts with #RecessionIndicator. They cite everything from music and fashion to tipping culture as indicators of economic decline.
“We’re starting fresh with our District 12 frock,” commented one Gen Z influencer. “It’s made out of a nice rough material… It doesn’t need washing that often. That is recession-core.”
If Gen Z sees a simple dress as a sign of recession, what will they think of a staple diet of rice and beans?
When Bank of Mom and Dad Goes Broke
This harsh economic environment is hitting young adults particularly hard. A study from savings.com found that half of parents with adult children regularly aid their grown kids financially. On average, “Bank of Mom & Dad” provides $1,474 per month per child, totaling about $18,000 annually.
Parents are draining their retirement funds just to cover their adult children’s basic needs, such as groceries and rent. According to savings.com:
“The financial strain of supporting grown children is especially acute for parents trying to save for retirement. Parents still in the workforce contribute over twice as much money to their adult children monthly as they do to their retirement accounts.”
What happens when parents retire or no longer have funds to support their children? Will these young adults manage to stand on their own through employment? Will they reciprocate after drawing down their parents’ retirement savings?
These uncomfortable questions arise when a society enters a downward spiral. As systems collapse, traditional norms and expectations disintegrate.
Parents must support their adult children until the familial bank runs dry. In parallel, credit card delinquencies accumulate, and if enough individuals default on their debts, the entire financial system could falter, leading to bank failures and significant losses in assets.
To change direction, the U.S. economy requires lower consumer prices and an increase in well-paying jobs. This transformation would empower workers and consumers to sustain a decent standard of living without accumulating crippling debt or relying on parental financial support. Yet, Trump believes tariffs are the solution.
If only it were that simple.
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Sincerely,
MN Gordon
for Economic Prism
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