It’s easy to explain what will bring down the economy in the not too distant future.To fight inflation, the Fed is raising interest rates, and when the Fed starts to hit the brakes, the recession follow often. The Russian War in Ukraineongoing supply chain crunch, covid-19 outbreak and end $5 trillion All of this adds to an already tense situation in federal pandemic aid.
Less clear is how to save the country from recession when the US appears to be returning to a have/no economy.
The most immediate way to avoid a recession is for Americans to keep spending.Voters may not like today’s economy and high prices, but they’re spending more every month this year. Luxury brands and stores that cater to high-end shoppers, such as Nordstrom do very well. The same goes for anything related to travel: flight, hotel and Disney theme park Thrives in the summer known as “revenge travel.”Even some cruise lines are reporting record booking.
“If consumers don’t back down, there won’t be a recession,” Joe Brusulas said. Chief Economist at tax and consulting firm RSM. “The real economy continues to perform well.”
People have a lot of money in their hands, which helps maintain spending. very easy look for a job –one left raiseMany Americans have also been able to save more in the past two years because they didn’t go out much and many received pandemic stimulus payments and other aid.Oxford Economics estimate Households have saved an additional $2.5 trillion since the start of the pandemic Only $40 billion has been spent so far. This is an additional buffer against price increases. company and state and local government They are also sitting on a lot of extra cash that can be spent or returned to shareholders and residents.
But while overall spending remains strong, not everyone has the money to spend.Walmart shoppers are reduce Everything except food and other basics. It’s a similar story with savings. Even after the stock market fell, the top 40% still have a lot of excess cash.Meanwhile, the bottom 20% have accumulated savings over the past two years of Gone, Morgan Stanley found it.
Hourly workers usually enter survival mode during periods of high inflation. They struggled to keep up with rising gas, food and rent costs, and they had little to spare to cut. As the economy slows, they may see their bargaining power diminish and working hours cut in some industries.
For now, the wealthy continue to buy on a massive scale, enough to keep the overall economy going. But that spending could also evaporate quickly. Look at the real estate market.Almost overnight, frantic bidding wars stopped, homes sold dry up This spring, consumers finally shied away from high prices and rising mortgage rates.
There is no doubt that the U.S. economy is going through a major shift — multiple shifts, in fact.Government support falls three times: Fed hikes rates stop its bond-buying programand total federal spending is falling.
While this aid is disappearing, Americans are changing their habits.After two years of mostly staying at home and spending money on merchandise, they’re taking the plunge again service expenditure. We are moving from a Netflix economy to a Night Out economy, and retailers like Target admit They were shocked by the rapid shift in consumption patterns.
Transitions are always tough, and this one was especially hard to read. How long can consumers spend? Are families simply shifting their spending from home improvement and backyard entertainment to dining out and travel? Or maybe consumers will put their wallets away soon? If the stock market and house prices fall this summer, how much will that deter consumers from continuing to reduce their cash on hand?
As recession warnings mount, it’s important to keep in mind what’s important to the real economy: hiring and consumer spending. Downgrading hiring and consumer spending from strong to solid is good — even more desirable than the Fed.
As long as the rich and the upper-middle class continue to consume, probably not a recession. But that doesn’t mean the economy makes many people feel good, Americans, if not most.