DragonI

Companies Cut Back, but Consumers Party On, Driving the Economy

Things feel chillier in the executive suite than they do at the mall, and the future of a record expansion hangs in the balance.

www.nytimes.com

Nicholas Bloom, an economics professor at Stanford University, disagrees [with earlier comments by Richard Curtin, director of consumer surveys at the University of Michigan]. A co-director of the research panel responsible for the Survey of Business Uncertainty for the Federal Reserve Bank of Atlanta, Mr. Bloom sees business in the lead.

“Business is more forward-looking,” he said. “We’re at the end of a very long expansion, and there are now a number of politically driven headwinds: Trump’s trade fight with China, Brexit and Europe’s slowdown. It’s the last song of the night.”

He described consumers as more backward looking. The average person tends to notice the very low unemployment rate and reports of stock market rallies, he said, which create a sense of good times.

It’s the last song of the night.

American consumers are energetically engaged in a spendathon.

Consumer spending is always a trailing indicator of overall economic activity. Look at headlines prior to previous recessions: people spend right up to the time they don’t.  They increasingly use debt to fund the spending. And then, whammo.  If consumer spending is the only thing propping this economy up, well, buckle your safety belt.  It’s going to be a bumpy ride.