Capital Market Impact

Richcession? Rolling recession? What to expect for the economy going forward

September 13, 2023
A woman looking into the air.

Are we headed for a recession, or can we avoid it? It’s a question many people are asking, but any answers as of this writing are far from clarifying. When we conducted our recession survey in April, over two-thirds of individuals (68%) said they expected a recession in the U.S. in the next six months. A majority of those expecting a recession (78%) believed it would be severe.

More recently, positive economic news eased some of these fears. Inflation has decreased considerably from last year’s spike, although higher prices persist in many areas of the economy. Consumers have continued to shop, with retail spending growing in July at its fastest pace all year. Retail sales have been helped by the solid job market, where payroll growth, low unemployment, and wage gains have brightened consumers’ moods.

Still, we’re not in the clear just yet. At the Federal Reserve, monetary policy favored rate tightening with a quarter-point hike in July and possibly one more later this year. There’s also concern at the central bank that the healthy jobs market and ongoing economic activity will keep upward pressure on consumer prices, requiring more rate hikes to combat inflation. These signals help support the Nationwide Economics forecast for a moderate recession in early 2024.

There’s been discussion in the financial press about what kind of recession we may see in the near term. Terms like “richcession” and “rolling recession” frequently appear, drawing investors’ interest and creating confusion about the future path of economic growth.

Recession worries can strongly influence investor sentiment; 58% of those surveyed said they’re concerned about their ability to save during a recession. As a financial professional, you’re positioned to counter these negative influences and clarify the confusion about what to expect from the economy going forward.

What is a richcession?

“Richcession” is a relatively new term that entered the conversation earlier this year to explain the possibility that wealthier Americans would experience recession-like conditions but not everyone else. The idea emerged as layoffs rolled primarily through technology firms and often affected highly-paid workers. Wage gains from the lows of the COVID pandemic, which lagged for higher-wage jobs, also encouraged “richcession” talk as pay increased more quickly for lower-wage workers.

In our view, it seems difficult to suggest higher-income people are going through their recession at a time when home values have remained sky-high, and stock markets have done very well. Spells of unemployment for higher-wage workers are also often brief because their job skills are typically more transferable than those of lower-wage workers.

What is a rolling recession?

What’s more plausible is a rolling recession – where specific sectors of the economy experience recessionary conditions while others remain strong enough to keep overall economic growth solid (and the overall economy out of recession.) The steep decline in the housing market at the start of 2022 was an excellent example of this, as is the ongoing contraction in manufacturing, which began later in 2022 and persists as of this writing. Both housing and manufacturing are sensitive to changes in interest rates, so they were bound to feel the impact of the series of aggressive rate hikes by the Federal Reserve as the central bank sought to bring inflation under control.

However, during this period of rising interest rates, the services sector has remained robust and helped to keep the overall economic growth positive. This mainly occurred because consumers shifted their spending preferences from goods to services as the COVID pandemic subsided. The question is, will the services sector fall into contraction before growth picks up in housing and manufacturing, resulting in the overall U.S. economy rolling into a recession in the near term?

Is a recession still in sight?

We think so. Our baseline forecast calls for a moderate recession to start early in 2024. However, another possibility is the “soft landing” scenario, where housing and manufacturing emerge from their contractions and begin to grow again while services never actually reach recession territory. Because inflation – particularly core inflation, which strips out the volatile food and energy components – is still elevated, we believe a soft landing is less likely than the recession scenario. The Fed is poised to keep monetary policy tight for an extended period to ensure inflation trends down to its 2% target. Higher-for-longer interest rates are likely to prevent meaningful growth in housing and manufacturing and should continue to pressure profit margins. That would, in turn, lead to rising unemployment and recessionary economic conditions.

For now, a virtuous cycle of strong job and income gains and solid consumer spending is holding off the recession. But most leading indicators suggest that activity is slowing broadly, while higher costs and borrowing rates pressure profit margins. Spending cuts by households and businesses in coming months and further rate tightening by the Fed should result in a moderate recession starting in early 2024. The odds of a soft landing may have increased somewhat, but we still believe a recession is more likely than not, even if the timing has been difficult to nail down.

How can investors survive a recession?

An economic downturn will likely affect many of the basic financial decisions people make daily. Should inflation stay stubbornly high, many households may tighten their budgets and curtail spending. Loss of income during a spell of unemployment would likely deplete many people’s savings. But recessions can also have long-term financial impacts, which we uncovered in our April survey. Over half of respondents expressed concerns that a potential recession would hamper their ability to save for retirement and reduce the value of their retirement accounts.

Anxiety about a possible recession is not necessarily surprising, but it remains vital to understand and empathize with your clients who are feeling anxious or concerned about their financial future.

Understanding and empathy on your part can go a long way toward helping clients regain their focus on their long-term plans and offer you the opportunity to build deeper relationships with your clients.

During economic uncertainty, investors are often tempted to retreat or surrender in the onslaught of negative news. But you are in a prime position as a financial professional to discourage emotional decision-making and keep your clients on a course toward their financial goals. Here are a few ways you can help encourage your clients:

  • Stay calm: Market fluctuations alone are not a reason to make changes in investment strategy. To help clients maintain perspective, remind them that a recovery has historically followed every downturn.
  • Stay diversified: A well-balanced portfolio suitable for a client’s specific investment goals and risk tolerance may help lessen the impact of market fluctuations.
  • Stay invested: History shows that the impact of short-term market losses diminishes over longer time frames.


  • The information provided by Nationwide Economics is general in nature and not intended as investment or economic advice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account any specific investment objectives, tax and financial condition or particular needs of any specific person. The economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actual performance. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness.

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