Why do consumers keep spending when so much news warns of an impending recession? Well, because we’re not even close to a recession yet. NYTimes columnist and Nobel laureate Paul Krugman has been puzzling over it as well.
“America hasn’t yet brought inflation back to prepandemic levels, and we may yet have a hard landing. But so far, at least, we’ve had a stunningly successful recovery from the Covid shock.”
Retail sales are up 3.1 percent YoY, though slowing from its prior highs since the pandemic as shown in the above graph.
“Advance estimates of U.S. retail and food services sales for April 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $686.1 billion, up 0.4 percent (±0.5 percent) from the previous month, and up 1.6 percent (±0.7 percent) above April 2022. Total sales for the February 2023 through April 2023 period were up 3.1 percent (±0.4 percent) from the same period a year ago.”
Consumers won’t let up their spending ways anytime soon with summer approaching, schools are out, and leisure activities still the favorite thing to do.
For instance, so-called nonstore retailers (Internet) were up 8.0 percent (±1.2 percent) from last year, while food services and drinking places were up 9.4 percent (±2.5 percent) from April 2022, a sign that consumers haven’t yet spent those excess savings accumulated during the pandemic.
I am also puzzled by the disconnect between perceptions and reality. Americans know employment is at a record high, even with the baby boomer retirement, and wage increases are keeping up with rising prices.
It could be the debt-ceiling debate and constant bickering between political parties are unnerving the average citizen. Or the Federal Reserve interest rate increases while hammering on the dangers of inflation.
And I believe we are still suffering a hangover from the COVID-19 pandemic that shut down the world economy, a multi-year shock to our collective psyche that will take years to recover from.
The hyper-partisanship and distrust of institutions, including the Federal Reserve, can’t be helping, either.
The uncertainty of a better future is also affecting public opinion—caused by a hot Russian war, a Chinese cold war, a broken border, supply disruptions; you name it.
This contrasts with economic reality. Industrial production increased a very large 1.0 percent in April with motor vehicle production surging 9.3 percent after declining 1.9 percent in March. And the Atlanta Federal Reserve's GDPNow model predicts 2.6 percent GDP growth in the second quarter after Q1 growth of 1.1 percent.
Manufacturing production has been in a 6-month slump, so maybe it is climbing out of its own recession? (There’s that word again.) So what should we make of the bumpy economy we are riding?
Above all, I believe there’s a general anxiety weighing on Americans over their future. Too much change is uncomfortable, but still bearable. What will happen in generations to come?
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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