But stock prices fell into a bear market and house prices are beginning to decline. With rising mortgage rates, cash-out refinancing, which provided money for other spending, is history. Household net worth dropped 4.1% in the second quarter as stocks and mutual funds tanked, according to the Fed.
Borrowing is getting more expensive as witnessed by the jump in credit-card interest rates from 16% in early March to 18% in September. Low levels of consumer confidence signals that Americans are too scared to support the economy with a spending binge, but are hunkering down instead.
With all these forces weighing on consumers, who account for 68.4% of total output, it’s not surprising that real retail sales in August were down 4.4% from March 2021 and 1.2% from last November.
Unemployment lags the economy in business cycles. Only when business sales and profits nosedive do employers cut staff. And this time, as the recession I’ve been predicting unfolds, employers may be slower than usual to make the switch from recruiting to firing. But it will occur.
In recent months, job openings are falling and so is hiring. Ditto for quit rates as employees begin to worry about finding new jobs. And the unemployment rate ticked higher from 3.5% in July to 3.7% in August.
Don’t be surprised if labor market data moves quickly from feast to famine. That will put further downward pressure on corporate earnings and stock prices. But it will curb inflation, to the benefit of U.S. Treasuries.
Gary Shilling is president of A. Gary Shilling & Co., a consultancy. He is author, most recently, of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, and he may have a stake in the areas he writes about.