From the Wall Street Journal this morning, under a headline that says, "The U.S. Consumer Is Starting to Freak Out:"
"The engine of the U.S. economy - consumer spending - is starting to sputter.
"Retail purchases have fallen in three of the past four months. Spending on services, including rent, haircuts and the bulk of bills, was flat in December, after adjusting for inflation, the worst monthly reading in nearly a year. Sales of existing homes in the U.S. fell last year to their lowest level since 2014 as mortgage rates rose. The auto industry posted its worst sales year in more than a decade.
"It’s a stark turnaround from the second half of 2020, when Americans lifted the economy out of a pandemic downturn, helping the U.S. avoid what many economists worried would be a prolonged slump. Consumers snapped up exercise bikes, televisions and laptop computers for schoolchildren during lockdowns. When restrictions were lifted, they rushed back to their favorite restaurants and travel destinations.
"And they kept spending, helped by government stimulus, flush savings accounts and cheap credit, even as inflation picked up. Faced with four-decade-high inflation last year, Americans outspent it. Through most of 2022, consumer spending growth exceeded price increases by about 2 percentage points.
"Now the forces that helped keep spending high are unwinding, while inflation remains elevated. The share of monthly income Americans set aside for savings was 3.4% in December, down from 7.5% a year earlier and from a record high in April 2020. Credit-card interest rates have been rising, and Federal Reserve officials have signaled that they plan an additional quarter-percentage point increase to the central bank’s benchmark rate this week. That would bring the rate to between 4.5% and 4.75%, from near zero at the start of last year."
And then, in the Washington Post, a story with this headline - "Prospects for the global economy are improving, as worst fears fade"…
"The outlook for the global economy in recent weeks has unexpectedly brightened, with the United States, Europe and China all outperforming expectations and avoiding — at least for now — some predicted stumbles.
"American employers continue to hire at a steady clip while the latest European manufacturing gauges signal expansion and Chinese consumers are spending again.
"Much of the improvement in the world’s three main economic engines, however, is more the result of disasters averted rather than any new boom.
"In the United States, the Federal Reserve’s fastest interest rate increases in 40 years have yet to push the economy into recession, as employers such as Boeing and Chipotle plan to hire thousands of new workers. Energy shortages that some feared would strangle European factories have not materialized because of relatively mild winter weather. And Chinese leaders abruptly freed their economy from harsh covid restrictions in December, months earlier than investors anticipated … In the United States, where most forecasters still anticipate a recession as soon as this spring, policymakers may be able to steer the overheated economy to a “soft landing” — bringing inflation under control without plunging into a downturn, the IMF said. By 2024, the fund expects the U.S. economy to be barely expanding, with prices cooling and the jobless rate peaking at 5.2 percent, up from today’s 3.5 percent."
- KC's View:
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It is entirely possible that both stories are accurate - consumers are freaked out, and the lagging indicators of a normalizing economy haven't reached them yet.
Axios makes the point this way: "The dominant narrative in 2023 looks increasingly likely to be exactly the same as we saw in 2022: No recession, despite roughly half the population being convinced we're already in one."
