As the Holidays Approach, Should We Worry About a Recession?

The holiday season is coming, and along with it are the corresponding colorful lights, pomp, and grandeur. It is a time of giving gifts, spending quality time with the family, and eating hearty food. However, should we feel concerned about a recession, which can potentially ruin it?

Many Americans think that we are currently in a recession. Presently, there is a heated debate going on across the country that centers around this question: is our economy really in a recession?

A Complicated Answer

The answer is more complicated than we can suspect. If we ask the Biden administration, the Federal Reserve, and most U.S. economists, they will tell us there is no recession.

Brian Deese, an economic adviser to the president, said that the U.S. economy doesn’t have a recession due to strength and resilience in the labor market having a better position than other developed countries in the world.

Federal Reserve Chairman Jerome Powell had pointed to the strong labor market as proof, even though this year, there was a rise in inflation, a five-time increase in interest rates in an effort to lower it, and the lowest unemployment rate of 3.5% in fifty years.

And only 11% of economists surveyed by NABE (National Association of Business Economics) believed that the U.S. is already in a recession.

Many pointed to the decline of the U.S. gross domestic product for the second consecutive summer as the main reason for a recession, and Wall Street had defined it as having proof of two consecutive quarters of negative GDP.

Tesla CEO Elon Musk believed that the U.S. economy is already in a recession, which he said can last until 2024. Other contributing factors are the ongoing war in Ukraine and the slowing down of global economic growth.

Should U.S. Shoppers Worry About a Recession?

As the holiday season approaches, shoppers are expected to dole out more than the previous year. It will be regarded as the last spending spurt before an expected recession takes control.

And shoppers should be worried. As mentioned above, one reason is inflation, which has been running at a 40-year high for months. Despite this, consumer spending has remained resilient and vibrant, beyond most economists’ expectations.

This metric has confused the Federal Reserve in its efforts to reduce consumer spending by hiking up the interest rate aggressively this year. This has been fueled by a shift from services to goods amidst pandemic restrictions and partly by lingering federal stimulus cash.

The high level of U.S. consumer spending has been a blessing for retailers who, for the past few years, had been cashing in. And based on predictions on sales volumes for the approaching holiday season, consumers are more likely to spend more for the next few months.

However, the same economists who have a positive outlook also believe the U.S. economy will approach an economic recession. It will suppress consumer exuberance that has been abundant since the mid-2020s.

Holiday Spending is Up

Shannon Seery, an economist from Wells Fargo said the strong consumer spending will carry into the 2022 holiday season, and overall sales will be up over 2021. However, she noted that the increase would be substantially smaller than the previous two years, after adjusting to inflationary increases.

She also said that there is an expected 6% gain in holiday spending, but it will be due to an increase in prices, and in real gains, it will only be closer to 2%.

Some economists predict a steady growth in online retail sales during the holiday season but will slow down substantially as inflation lessens consumer spending capacity. It will increase to 2.5% and hit nearly $210 billion this year.

Tightening Our Economic Belts

As our economy continues to recover after the pandemic, we should prepare ourselves for possibly the worse to come. Even though people continue to debate whether there is indeed a recession or not, one thing is certain: we should figuratively tighten our economic belts and spend our hard-earned cash wisely.

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