Any number of prominent economists have been warning us for months that a nasty recession is just around the corner. Yesterday, The Economist and an NYT columnist made the case that the recession, although long delayed, is still coming. Are they right, or are they waiting for Godot?
The business cycle still exists, so at some point, they will inevitably be right. In the near future, however, the recession will only arrive if the wealthy consumers who are continuing to spend regardless of the Fed’s actions lose confidence and pull back. What could make that happen? I can only think of two things: an unanticipated external shock that crushes the markets and asset prices; or a decision by the Fed to dramatically increase rates and keep them artificially high for an unexpectedly long period of time. The former is possible; the latter is highly unlikely.
There is an important point to be made here: similar to presidential approval ratings, consumer confidence surveys aren’t as relevant as they used to be, because the dollar store economy runs on the spending of the affluent, not what is left of the middle class. Inflation and consumer spending are all tied to increasing levels of inequality in a way that was not true 20 years ago.