Is the Consumer about to Tank?

Credit card delinquency rates rising

Most forecasters expected a recession in 2023. Even McDonalds thought we’d have a downturn by year’s end. This is what their CEO said earlier this year: “Our base case for a mild to moderate recession in the U.S. and one that will be a little deeper and longer in Europe is unchanged . . .”

While growth has been shockingly strong so far, it’s still too early to make jokes about the people who predicted recession being clowns (and not just because I have and continue to predict a downturn by year’s end, though that’s part of it).

To quickly recap the surprising economic strength: payroll employment continues to grow at a rapid-but-slowing rate (that’s ideal), the unemployment rate is close to half-century low, retail sales are rising faster than prices, and inflation, which peaked at 9.1% year-over-year in June 2022, has slowed dramatically, down to the low 3% range. All of this has occurred despite rapid monetary tightening by the Fed which, as of their July meeting, brought us to the highest interest rates since the turn of the century.

But this post isn’t about how good the economy has looked this year; it’s about why it might not look as good by year’s end.

Credit where credit’s due (but late)