U.S. Economy Struggling in July, According To Decision Analyst's Economic Index

Arlington, Texas—The Decision Analyst U.S. Economic Index rose to 104 in July 2022, a 4-point increase from June 2022, but a 10-point drop from its recent peak in of 114 in July 2021. The Index has been trending down on average for the past 12 months, a strong indicator that the U.S. economy is in a recession now or on the brink of a recession. Inflation is reducing consumers’ purchasing power, supply chain disruptions continue to negatively affect the U.S. economy, and the war in Ukraine and related economic sanctions are creating strong headwinds for the world economy. The Economic Index tends to be a leading indicator of future economic activity. The past 20-year history of the Index is shown below.

“The U.S. Economic Index, on average, has been falling over the past year, indicating the likelihood of an existing recession or a coming recession. The decline in the Index over the past 12 months has been driven primarily by high and rising inflation, lingering COVID-19, supply-chain disruptions, and more recently by the Russian invasion of Ukraine and the resulting disruptions to economic flows across the world. High inflation rates reduce consumers’ purchasing power and encourage them to postpone major purchases in the hopes that prices might be lower in the future. Inflation is especially damaging to lower-income households, because so much of those households’ budgets are taken up by food, transportation, and housing expenditures—where prices have increased rapidly,” according to Jerry W. Thomas, President/CEO of Decision Analyst.

“The 4-point uptick in the Economic Index from June 2022 to July 2022 might be related to consumers’ improving perceptions of inflation. Over the years, we have observed that the price of gasoline plays an outsized role in consumer inflation perceptions. By late July 2022 (the most recent data collection period), gasoline prices were falling rapidly, and this might explain this month’s bounce in the Economic Index. High inflation rates might continue to moderate during the closing months of 2022, especially if the Federal Reserve continues to raise interest rates and to pursue quantitative tightening. If governmental policies can help reduce inflation, consumers would see that as a positive development and likely expand their consumption spending,” noted Thomas.

“But as of now, consumers’ planned future purchases (see graphs below) indicate that consumer spending plans (roughly 70% of the U.S. economy) are starting to wane in major sectors of the economy. The graphs below show the percentages of U.S. households that say they are likely to make various types of purchases in the next 12 months. A quick look at the charts reveals that consumers are anticipating reductions in their spending over the next 12 months, another indicator of recession,” said Thomas.

"Overall, the risks of a recession in the U.S. economy are substantial,” said Thomas.

Methodology

The Decision Analyst Economic Index is based on a monthly online survey of several thousand households balanced by gender, age, and geography. The scientific survey is conducted in the last 10 days of each month. The Economic Index is calculated from 9 different economic measurements using a sophisticated econometric model. The result is a snapshot of coming economic activity in each country surveyed, as seen through the eyes of representative consumers living in the respective countries.

Decision Analyst conducts its concurrent economic surveys each month in Argentina, Brazil, Canada, Chile, Colombia, France, Germany, India, Italy, Mexico, Peru, the Russian Federation, Spain, and the United States. Whenever the Decision Analyst Economic Index is greater than 110, it tends to signal an expanding economy. An Index value of 90 to 110 suggests a no-growth or slow-growth economy, and near or below 90 generally indicates economic contraction. These guidelines vary by country, however.

About Decision Analyst

Decision Analyst (www.decisionanalyst.com) is a global marketing research and analytical consulting firm specializing in strategy research, new product development, advertising testing, and advanced modeling for marketing decision optimization. For over 40 years, the firm has delivered competitive advantage to clients throughout the world in consumer-packaged goods, telecommunications, retail, technology, medical, and automotive industries.

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