- Economist Carl Weinberg told CNBC that consumer spending is being financed by credit cards and the interest rates are “exorbitant and out of control at this point.”
- Weinberg expects spending to shrink in the new year as the debt burden increases, but probably not enough to push the U.S. economy into recession.
- Monica Defend, head of the Amundi Investment Institute, said the upcoming rebound in consumer spending could be enough to trigger a recession in the first half of the year.
Economist Carl Weinberg says the U.S. economy should be able to avoid a recession next year, but a sharp decline in consumer spending is one of the biggest risks.
“Consumers are starting to wake up to the fact that they are covering their expenses by maxing out their credit cards, and that the interest rates on credit cards are currently exorbitant, out of control, and exorbitant,” the chief economist said. where we are,” the chief economist said. The high-frequency economics professor told CNBC’s “Squawk Box Europe” on Wednesday.
“I think that will lead to a contraction in consumer spending as we enter the new year.”
Weinberg’s base scenario assumes a slowdown in growth, not a recession.
Weinberg pointed to New York Fed statistics showing that credit card delinquencies are on the rise, adding, “But there is a risk that consumers will get into trouble, and I think that’s a significant risk.” I agree.”
“Real incomes are just starting to come back up again, but it’s not enough to cover some of the increase in debt burden that we’re seeing. There are risks. That’s the downside risk.” I’m keeping an eye on where the risks are to this Goldilocks prediction. ”
A “Goldilocks” scenario is one in which the economy grows enough to avoid a recession and adverse labor market effects, but not enough to fuel inflation.
Monica Defend, head of the Amundi Investment Institute, says her basic scenario is a recession in the U.S. in the first half of next year.
“Financial and monetary conditions will eventually begin to hurt U.S. consumers, who are gradually depleting their protected excess savings over the course of 2023,” Defend told CNBC on Wednesday. Told.
“Consumption has slowed and the labor market has gradually cooled, and this will continue. Therefore, we expect a technical recession in the U.S. in the first and second quarters.”
Many strategists believe the U.S. has achieved a “soft landing” for the economy by raising interest rates. Nevertheless, they remain cautious about the outlook for 2024, warning of delayed and unpredictable effects of rising interest rates.
While other major economies, including the eurozone and the United Kingdom, have stagnated, U.S. growth has remained strong this year.
Mr Defend argued on Wednesday that investment stimulus provided by initiatives such as the Inflation Control Act was not enough to overcome the consumption slump.
“During the pandemic, there have been significant transfers from governments to households and ultimately to consumers. If you look at savings rates, they actually peaked but have now gone south quite noticeably.” she stated.
“This, and the fact that excess savings are actually dwindling, is such that I don’t think U.S. consumers will be able to sustain it and maintain the same levels as they have over the past two years.”
