Strong consumer spending and a robust jobs market have so far helped mitigate negatives like inflation, but they can’t last forever.
“The U.S. Consumer Is Starting to Freak Out,” opined Harriet Torry and Joe Pinsker for the Wall Street Journal today. “The engine of the U.S. economy — consumer spending — is starting to sputter.”
“Retail purchases have fallen in three of the past four months,” warned Torry and Pinsker. “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 WSJ continued. “The auto industry posted its worst sales year in more than a decade.”
Flush with largesse from the government stimulus programs that some critics called overly generous and generalized, “consumers snapped up exercise bikes, televisions and laptop computers for school children during lockdowns.”
When things opened up again, U.S. consumers went right on spending — eager, it would seem, to revisit their favorite dining haunts and entertainment venues.
A combination of factors has dimmed this rosy 2020/2021 picture from a population grown fat on stimulus checks and spending freely to the harsh new realities of 2023.
Crushing price increases on most major monthly expenses have been taking their toll on American households and the strain is starting to tell. Struggling consumers who relied too heavily on credit cards are paying a hefty price as interest rates rise exponentially to cool the overheating market and slow red-hot inflation.
“Consumer Spending Slid Again in December,” the New York Times reported on January 27, 2023. “
In addition to drooping consumer spending, other negative economic indicators are making economists increasingly nervous about the prospects of a recession in 2023 or 2024.
Layoffs have begun in earnest across several industries.
After disappointing quarters in 2022, Walmart joined the retail titan Target in slashing jobs. Even the massive online retailer Amazon, a company that profited greatly from lock-down shopping, has announced layoffs to the tune of 18,000 workers.
Goldman Sachs, Disney, and many other major companies have taken similar steps to downsize their workforce.
U.S. media companies are also experiencing job cuts, layoffs, hiring freezes, work travel moratoriums, and other, “cost-cutting measures,” as Axios put it on October 25, 2022, predicting a “Bad winter coming for U.S. media companies.”
At CNN and NBC, the jobs cuts have been such as to draw labels like, “bloodbath” and, “firing spree.”
In an ominous sign of recession, even the wealthiest tech companies in Silicon Valley have announced massive layoffs: Meta, nee Facebook, Twitter, Microsoft, and even Google.
Google employees are taking it particularly hard.
“How are we ever supposed to feel safe again?” is a sentiment being echoed by Google employees who survived the recent layoffs.
So, is the U.S. headed for a recession?
These dire portents aside, it’s difficult to predict the future of the U.S. economy — especially as it is so inextricably linked to the wider global marketplace.
While some economists have expressed concerns about the current state of the economy, others believe that the economy will continue to grow. Ultimately, the direction of the economy will be influenced by a variety of factors, including government policies, consumer behavior, and global economic trends.
World events also have tremendous influence over the U.S. economy. The Russian invasion of Ukraine could end tomorrow, or the Chinese Communist Party could invade Taiwan.
There are no definitive signs that a recession will occur in 2023. However, some factors that could contribute to a recession include:
- Increased unemployment
- Reduced consumer and business spending
- Depressed housing market
- Higher interest rates
- Stock market fluctuations
- Trade tensions
It’s worth noting that the presence of some of these factors does not guarantee a recession and that the economy can also be influenced by unexpected events, both positive and negative.
(contributing writer, Brooke Bell)