Editor's note: We've covered a lot of reasons to expect higher stocks this year in DailyWealth. But it's always wise to prepare for a variety of outcomes. Right now, our colleague Mike DiBiase is warning that the American consumer is worse off than most people think. In this essay, he shares why that's a worrying sign for the economy...

Not too long ago, a six-figure salary meant a couple of cars in the driveway and weekends at the country club. These days, it might mean moving in with Grandma...

That's the story of Devin Parker, a 34-year-old former Marine who makes $102,000 a year. He has a steady job as a logistics supervisor at a factory outside Baltimore, along with military benefits. But rising expenses meant Parker couldn't comfortably support himself and his 8-year-old daughter.

Now he's back in his childhood bedroom at his grandmother's house. In a recent NBC News feature on folks who struggle despite high incomes, he admitted the adjustment hasn't been easy...

There's been a lot of humility... Most everything is cooked from home now.

Parker isn't alone. The same NBC feature also highlighted the plight of a single woman who pulls in $86,000 per year but lights her home with homemade candles to save electricity... and another who makes more than $108,000 per year but can't save enough for a down payment on a house.

Stories like these are playing out across America. Families once living the American dream are now straining to make ends meet. Their wages can no longer keep up with rising prices, and they're getting poorer by the day.

And things are going to get worse... A recent World Economic Forum survey found that nearly two-thirds of economists believe we'll see a recession this year.

I'm shocked that number isn't higher. A recession is all but guaranteed.

This recession will be disastrous... It will put millions of people out of work. Consumer spending will plummet, and credit will dry up. Put together, that spells disaster for most stocks and bonds.

Let's review the ominous warning signs in our economy...

If you watch the financial news, you hear a lot about the strength of American consumers. The talking heads spout on about a "soft landing" (Fed-speak for a gentle recession) or even "no landing" at all as the Federal Reserve works to cool the economy to fight off inflation.

Their story goes like this: Consumers are healthy and will continue to spend... Their jobs are safe since the unemployment rate is near historic lows... And inflation is falling and will soon be back to normal, allowing the Fed to begin bringing interest rates back down.

The problem with that story is that it's based on lagging indicators like employment data and retail-sales figures.

When you look at leading indicators, the story is much darker. Nearly every recession indicator is screaming the same thing... that the U.S. is headed for a recession.

CEOs see what's coming. U.S. companies have already laid off more than 100,000 workers. And they're cutting production in anticipation of falling demand. The Institute for Supply Management's manufacturing index contracted for three straight months.

Higher prices and falling demand are already taking their toll. In the most recent quarter, corporate earnings for companies in the S&P 500 Index fell for the first time since the pandemic struck. The stock market is still priced on the expectations that earnings will increase this year. That's not going to happen.

All of this is bad news for an already struggling consumer. And since consumer spending accounts for nearly 70% of our economy, that's a big problem.

The average American is already in deep financial trouble. Persistently high inflation has eaten into savings and budgets. And inflation still isn't close to being under control yet.

Nearly two-thirds (64%) of all Americans are living paycheck to paycheck. That's 166 million people.

Let that sink in...

That means nearly all their income is gone as soon as it arrives. Americans have spent their stimulus checks, and their savings are depleted. Nearly 60% of the country lacks the savings to cover a $1,000 emergency.

What's more, the pain is spreading. A recent LendingClub report estimated that 9.3 million more people joined the paycheck-to-paycheck ranks between December 2021 and December 2022... And 86% of those people earn more than $100,000 a year. These are mostly middle-class families whose incomes are falling behind the cost of living.

In response, folks are borrowing just to pay the bills. In the most recent quarter, credit-card debt spiked 15% year over year to $986 billion, eclipsing a new record.

Adding to this misery, credit-card debt has never been more expensive.

Interest rates on credit cards now average 19%, a record high. The Fed will be forced to continue raising rates to battle inflation. So it's a near certainty that credit-card debt will top $1 trillion and credit-card interest rates will eclipse 20% later this year.

Meanwhile, total household debt – which includes credit cards as well as mortgages, car loans, and student loans – has soared to nearly $17 trillion. That's 33% higher than its peak during the last financial crisis.

Knowing these facts, anyone can see where this is headed... Massive amounts of household and corporate debt will go bad, starting this year.

Trouble will show up first in the form of late payments (delinquencies) in subprime loans. Delinquencies are already on the rise.

The harsh reality is that most Americans – whether they realize it or not – are getting poorer by the day. Interest rates are headed even higher at a time when most folks are already choking on debt.

The problem is only going to get worse until inflation subsides. Unfortunately, despite the optimistic stories you've seen on the news, that won't happen until we've seen a severe economic contraction and credit crisis.

Fortunately, you don't have to be one of the ones who suffers. Times like this can lead to surprising opportunities – but you must know what's happening to be prepared.

Good investing,

Mike DiBiase

Editor's note: We've just seen a bank run and two bank collapses. And if you're like most investors, you're probably worried about what the rest of 2023 will bring. But even if we do see a recession from here, one strategy can help. It's a way to set yourself up for legally protected income, outside the stock market... And its upside potential can skyrocket in moments just like this. You can learn all the details right here.