Newsletter: Worried about a recession? Go out and buy a pair of shoes
To hear the experts tell it, the only thing standing between us and a recession is you.
Which is to say, consumer spending is both the saving grace and the Achilles heel of the U.S. economy. If we don’t keep shopping, we’re doomed.
There’s been a lot of speculation lately about the possibility of a recession. Some economists say it could happen as soon as next year. Some say in 2021. President Trump says the economy’s doing great, so don’t worry your pretty head.
The reality is that uncertainty is growing, and if there’s anything the financial world doesn’t like, it’s uncertainty. The darkest storm cloud is our trade war with China. If it gets resolved, skies will brighten. If it doesn’t, a global slowdown and/or recession seems increasingly likely.
“I see [the trade war] as a leading indicator of the concern from the consumers, and if they decide that they’re going to pull out of the market, they decide they’re going to stop spending, that will force us, as quickly as anything, into a recession,” Jim Nussle, chief executive of the Credit Union National Assn. and former director of the Office of Management and Budget, told CNBC.
Here’s the reason he and others are worried: Consumer spending makes up about 70% of total U.S. economic activity. When we’re shopping, all’s well. When we circle our financial wagons, things can spiral out of control quickly.
This month, a key measure of consumer confidence from the University of Michigan fell to the lowest level of the year, reflecting growing worry about trade tension and the overall economy. The Federal Reserve recently cutting interest rates for the first time in a decade was taken by some households as a sign that it’s time to start stockpiling.
“Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession,” said Richard Curtin, chief economist for the University of Michigan’s Survey Research Center. “Falling interest rates have long been associated with the start of recessions.”
On Friday, Fed Chief Jerome Powell said in a speech that he “will act as appropriate to sustain the expansion,” which may or may not mean further rate cuts. Trump subsequently roiled markets by declaring Powell an “enemy” and ordering American companies not to do business with China, which he can’t actually do. The Dow fell more than 600 points.
There’s not much you and I can do except go along for the ride — there are larger forces at work here. But if you’ve got a little cash to spare, go out and buy a pair of shoes or something.
Think of it as a down payment on economic stability.
In the meantime, here are some upcoming events and stories that caught my eye:
Blast off: As early as Monday, a prototype of SpaceX’s Mars spaceship could launch to an altitude of about 650 feet — the highest it has ever gone — before returning to the ground near Boca Chica Beach in Texas. It’s part of Hawthorne-based SpaceX’s plan to develop a rocket booster and spaceship capable of eventually carrying humans and cargo to Mars.
Here are some of the other stories that ran in the Times Business section in recent days that we’re continuing to follow:
Super sale: How does a property once listed for $1 billion sell at auction for $100,000? With a lot of fine print. In what might be the biggest real estate markdown in history, the Beverly Hills property known as the Mountain has changed hands.
Keep the change: Amazon will abandon its controversial strategy of dipping into some delivery drivers’ tips to cover their promised wages. The reversal comes amid growing scrutiny on the payment practices of delivery start-ups, which have left workers largely in the dark about what’s happening with their tips.
It’s pronounced ‘mixed use development’: The iconic and hard-to-pronounce French restaurant Taix will become the site of a housing and retail complex, as well as a smaller version of the bistro. With six stories housing 170 luxury units, the project marks the latest big change for this booming stretch of Sunset Boulevard.
WHAT WE’RE READING
What’s on Amazon: Just because it’s sold on Amazon doesn’t mean it’s the real deal. A Wall Street Journal investigation shows the site’s marketplace is flooded with thousands of wrongly labeled, dangerous or banned products. (Extra credit reading: A Los Angeles Times look from last year at how Amazon benefits from counterfeits).
Where Uber went wrong: Former Uber Chief Executive Travis Kalanick reportedly voiced support for secretly using drivers’ phones to determine whether they were also working for the company’s competitor, Lyft. That’s one of the revelations from an excerpt of New York Times tech reporter Mike Isaac’s new book about the ride-hailing firm.
Until next time, see you in the Business section.