Is it a ‘richcession’? Or a ‘rolling recession’? Or maybe no recession at all?
By CHRISTOPHER RUGABER
June 27, 2023
So is a recession still in sight?
The latest signs suggest maybe not. Despite much higher borrowing costs, thanks to the Federal Reserve’s aggressive streak of interest rate hikes, consumers keep spending, and employers keep hiring. Gas prices have dropped, and grocery prices have leveled off, giving Americans more spending power.
Major job cuts, they note, have been concentrated in higher-paying industries like technology and finance, heavy with professional workers who generally have the financial cushions to withstand layoffs. Job cuts in those fields, as a result, are less likely to sink the overall economy.
At the same time, consumers ramped up their spending on travel and at entertainment venues, buoying the economy’s vast service sector and offsetting the difficulties in other sectors. Economists say they expect such spending to slow later this year as the savings that many households had amassed during the pandemic continue to shrink.
This article is filled with economic dichotomies like the ones highlighted above. There are many more at the individual level due to technology and social media platforms that have gone under everyone’s radar.
It appears there are some fundamental changes that have taken place in the economy that are not being measured by current models. For instance, the COVID shutdowns allowed businesses to make operational changes that would have required shutting down the operation, otherwise the enterprise could not afford to shut down and make the changes for various reasons. Individuals made career and lifestyle changes due to COVID or other opportunities the shutdown made available to them, i.e. job changes, education, or skills training. Current layoffs are into a market that was understaffed by 10 million workers.
Financially, COVID aid packages kept much of the economy intact while it was inoperable. Individual housing status were protected, and the inability to manufacture new housing created a sizeable backlog compared to rising demand. The Feds tightening is affecting those who participate in the economy at its margins via consumer credit, low or no down payments. Higher income workers and businesses were flush with cash as the economy began to resurge.
Many of these were small scale changes, but cumulative they have redesigned the economy in ways we don’t yet understand. It will be interesting to see how we look back at this economic period in future analysis.
I am hoping this is a shift to a new model.