Anyone who went thru went felt like a life changing (and life challenging) event, like the pandemic, is not going to behave in the same way people used to (before they had those experiences).
Because of social media, and the media - people felt, quite acutely - the very real risks of COVID - basically people felt (with some truth) that they were lucky to escape the pandemic alive, and because of this, are acting in a YOLO way - you saw people behave the same way 100 years ago from the combined effects of the 1918 Flu Pandemic and World War 1 - all over the world, but particularly in the United States.
I dont think we're really fundamentally understanding the real world psychological effects of the Pandemic and the psychological effects of feeling like we were living in an emergency for 18-24 months - and I think it'll likely take a decade or more to really analyze and process this.
I appreciate your perspective, but I'd like to provide an alternative viewpoint. I think only a minority of Americans were really effected by the pandemic in the way you're describing. Many Americans did not believe a pandemic was happening, or had ever happened. Many believed the pandemic was real, but worked through it anyway because they had no choice. Only a minority of Americans believed the pandemic was real, and could afford to rearrange their whole life accordingly.
I think there's a lot of reasons for runaway spending, from feeling overly optimistic about the economy, to feeling overly pessimistic about the economy, like the extravagant spending of Russian nobility on the eve of the February Revolution of 1917. It can even be the case that multiple groups are spending a ton for different reasons.
I'm sorry, you're wrong - and I dont say that lightly.
My roommate worked a service job during the pandemic, went to work every day.
He couldn't go shopping at a store for 6 months, he couldn't go out to eat for a similar length of time - there was social pressure on him to not do these things even once they reopened for fear of harming others. Social Media was acidic, and the mainstream media was.. upsetting, to put it politely. I'd also note that we are in Texas, which didn't keep its restrictions as long as NY or CA, and it was still traumatic.
All but the most crazy anti-vax nut jobs believe the pandemic happened, I know folks who would otherwise lean very conservative take it quite seriously - do you know why? they saw the morgue trailers. I know others folks who didn't who behaved the same way after watching a loved one die. The folks who didn't believe are not a small number, I'll admit - around 15% of the country - but polling backs up people believing the illness was real, and that it was dangerous - the level of danger however did vary in intensity by partisan paring.
For the record, I took everything very seriously; I wore masks everywhere and I was fortunate enough to work at home, have groceries/alcohol delivered, etc. We have different sources of anecdotal evidence, sure, but from my anecdotal evidence, I think everyone was very spooked for 1-3 months, and then by the end of 2020 most people were back to "YOLO, whatever". Especially in Texas, I worked a lot there during that time.
> The folks who didn't believe are not a small number, I'll admit - around 15% of the country
I think this is a lot closer to 25%, or higher. I don't know how to explain it, but a stupid number of people just did not give a shit. I guess because at it's peak Covid-19 was 10x more fatal than flu, but still not fatal enough for everyone to care about? I took it seriously, but I learned that a lot of people would literally rather take a chance dying, than wear a mask for an extended period of time.
I had a very similar experience, however it was Nebraska, not Texas.
Pandemic happened and everyone went panic mode for about two weeks. Local government said they were going to base restrictions off one metric, hospital capacity, and then things sort of went back to normal as the city hospitals weren't overflowing for very long.
People did die, but the it seemed like all the people who got screwed had obvious and major pre-existing conditions and the community was generally surprised they had made it as far as Covid in the first place.
No one I knew thought it wasn't happening, but the media response versus the severity of the problem on the ground seemed at odds in the area.
This is a completely idiotic number, I'm sorry. That's over half of people who claim to be conservative. Half. I live in Wisconsin and know of exactly zero people who deny the pandemic. I know one that still shoots up horse dewormer when he gets the sniffles, but that's one person out of many, and that's blatantly not denial.
Denial that it ever happened vs denial that it was as bad as it was (ie that reported Covid deaths match reality) are two different things.
I know quite a few conservatives that think some combination of: it’s just a flu, not actually a problem, we’ve gotten Covid many times and we were fine, death numbers are all made up, doctors are getting paid to mark deaths as Covid caused, and many other hysterical conspiracy theory beliefs.
I think you’re not in the same circles of folks that believe this stuff.
>Denial that it ever happened vs denial that it was as bad as it was (ie that reported Covid deaths match reality) are two different things.
Agreed. I interpreted GP as referring to the former. The latter is a much larger group.
> I know quite a few conservatives that think some combination of: it’s just a flu, not actually a problem, we’ve gotten Covid many times and we were fine, death numbers are all made up, doctors are getting paid to mark deaths as Covid caused, and many other hysterical conspiracy theory beliefs.
Same, but I know more that then got COVID and changed their tune. Many are close family.
> I think you’re not in the same circles of folks that believe this stuff.
Do not assume you know anything about the people I'm around, you do not.
> Same, but I know more that then got COVID and changed their tune. Many are close family.
Likewise, although unfortunately the folks I know have not materially changed their attitude. I know someone who has gotten it 4 times, apparently, and still spouts conspiracy theories and just shrugs it off. I guess he's gotten lucky that it hasn't caused him a lot of problems.
In the US, roughly a million people died of covid during the pandemic. That's ~1 in 340 people, or roughly two Dunbar's numbers (150). Meaning that every 1 in 2 people was 'close' to someone that died of covid. That plus the restrictions and all the other jazz. It was a lot.
Personally, my family lost 5 due to covid. And we lost another 3 during the pandemic that we had to digitally mourn too[0]. The family is still not processing all of it very well, as a fair few members are still at very high risk and travel is still restricted for us. It's as if those years didn't really happen. Personally, I have a hard time remembering 2020-22. There are just gaps in my mind.
I'm not the same person I was after it. My spending is a, to be honest, a bit more free now. There really is a sense of YOLO in my life. Not a very large sense, but a sense all the same. Seeing so many close family members die, sometimes at their bedside, it affected me. I know now, in some very small way, how short my life is. How precious it is, how frivolous it is. I'm personally still dealing with a lot of that memento mori.
[0] I will forever hate zoom because of those horribly dumb, mismanaged, separated funerals. Fuck's sake, digital cruelty.
You cannot apply that analysis because the deaths were not randomly sampled. They were hyper concentrated on certain demographics that also largely separate social networks.
I would guess Most people did not lose someone close (for conservative definitions of “close”). Given that you did lose someone close, you probably lost more than one.
People in my family tend to die younger for other reasons (cancer, MS), so not many were old enough to be in that category of people who were most vulnerable to it. On the other hand, I knew people with lots of elderly relatives, and they knew and were close to more than a few who died.
It's very hard to properly contextualize the number, however. For example it's true that the total number of deaths only increased by about 10-15% during COVID which is not trivial but also not a catastrophe either... however, you also can't really compare how people lived during COVID where everyone was isolated, to a typical year where people would be exposed to far more risks just naturally.
You could imagine that if hypothetically everyone lived the way they lived in 2020-2022 with little travel, little outdoor exposure, deaths would likely plummet, and yet even with all those restrictions deaths increased by about 15%.
It's very hard to get a sense of how much of a threat COVID posed since there's not much that it can be compared to.
A proper contextualization of the number must include how old the average covid victim
was. In my neck of the woods at least, hospitalizations and deaths were heavily skewed towards those in their 70s and 80s respectively.
For example, in 2021, 95k died were 85+, 110k died were 75-84, another 110k from 65-74. But that rate of death for 85+ was 1.6%, and then .6% (75-84), .3% (65-74), .1% (55-64), .09% (45-54), .03% (45-54).
Everyone was affected by the pandemic. Red state, blue state, service worker or constant zoom meetings, everyone was impacted. Local government, personal political views, socioeconomic status and everything else had an impact on how people experienced the pandemic and for how long (in some places things went back to more-or-less normal sooner), but there's no question that the entire world felt the impact intensely.
I think the thing that matters is how people perceive it now. If the US went through another epidemic with a similar mortality rate, I think that there would be greater resistance to masking. I think that people would compare it to Covid-19, say "we already did this once," and just skip it.
At one point, there were so many people dying some areas, that the dead had to be kept on ice until someone could come pick them up from their families homes. Obviously this happened in low income areas more than elsewhere.
Many people died, and were buried without a funeral or wake. Many people couldn't even visit their dying family members, and had to make do with video calls to their loved ones, all alone and hooked up to machinery as they passed on.
This was definitely a traumatic event. Looking at annual numbers glosses over most of the horror and shock of it. No wonder the Economists don't get it.
You hear constantly about how people in the USA who went through the Great Depression became lifelong hoarders, etc.
The idea that folks who went through a massive global pandemic (which, unlike the Spanish Flu, was liberally reported on in the media) wouldn't realize that their life is short and act accordingly is... funny.
I have heard so many people say "life is short, why wait?" in the last 18 months, maybe before that - I've seen people quit jobs, relocate, buy houses - do all sorts of things they wanted to do that made them feel more fulfilled, or just happier. I've even made choices of my own with a very big eye on mortality.
We might have been waiting before, but as I said elsewhere in thread, I've experienced three once in a lifetime type events since a turned 18 - why should I wait? I want to live the life I want to live. Pandemic for me tamped down any FOMO I might have, but did not tamp down the YOLO - because of that, why wait?, do the things you want now, while you can, bring joy and warmth into your life, experience new things - because you never know when the bottom might fall out again.
It's a lack of hope. There is no signal in sight that housing will go back to the affordability it had five years ago. The fed and corporations are making inflation worse, and while the government spending of the pandemic seemed wise to keep the circulation flowing while we were on pause, it does seem to have screwed the little guy with no house or stocks.
So if this is as good as it gets, why save or have hope? People getting by will just keep getting by.
Yeah, what's the point of saving? You put money in your bank account, it'll be worth only two-thirds of what it is now, despite nerds on the internet telling you inflation is at 3.5% or whatever. And I look pretty askance at investing on corporations that are not what they used to be, but lumber on.
Obviously the smart thing is to try to make money and then turn around and invest it in Amazon. But to what end? I make pretty OK money but no amount of that will let me afford a house, and I already have a terminal degree. Better to use my money to spend more time with my child.
This is all assuming you have stable employment and a 6-month rainy day fund, not having those things is a little too much YOLO for me.
I feel like people that ask what the point of savings is are younger and haven't experienced a housing crash. Every boom has a bust and anyone who has gone through things such as the housing crisis, dot com bust, or previous crisis know that savings through a bust you will end up really well off on the other side.
Even just the most recent housing crisis as an example. Houses crashed hard and if you had saved you could afford a house. History says that there will be an opportunity to buy and just be prepared for when it is time.
Inflation isn't great for people with stocks, and high interest rates are the main thing that can apply downward pressure to housing prices.
People with lots of debt have it rough right now. The little guy with no house or stocks, but no debt, however, has more of a chance to catch up when hard-earned assets depreciate via inflation and high interest.
If you had lots of debt and lots of assets even if in 2020 that was a net zero of you made it to 2022 you became insanely rich in the last couple years
Doesn't matter it still goes up, the mortgage note you owe 75000 2003 dollars would cost you 126000 now. Because while it's true in 2003 you made 35000, and now you make about 60000, you're still slightly ahead.
America had a boom then, and arguably so did europe in culture at least certainly.
That said, much of europes economic generation, was the flower of whole nations youths being stolen by flanders fields - either literally in death or psychologically. Nevermind the social and political upheavals seen in around half of europe from WWI - Britain which escaped more unfazed than most of europe from physical damage, still had a mix of cataclysmic change and steady social progress (unwinding of the values and cultural norms of the victorian/edwardian era) - and also suffered vast amounts of deaths.
National identities were formed too, Australia, Canada and New Zealand all or in part formed their national identities out of the cataclysm of WW I. This doesn't even account for the new nations formed all over Europe, The Middle East, and Africa because of The Great War.
And the fact that the disease itself was mild for most people didn't change the fact that people's lives were put on hold for 2 years. Even if you didn't feel like you "survived" it still put front and center that our current way of life isn't a given.
It was arguably the psychological impact of the on hold feeling that did more to explain now, than anything about the disease itself - though the pandemic did make me personally acutely aware of my own mortality - and I dont think I'm the only one.
> "If 18 months ago, you'd have said the Federal Reserve Bank could raise interest rates by 500 basis points, and the consumer would chug on, relatively unfazed, I would have been extremely surprised," says Ellie Henderson, an economist at UK-based, global bank Investec. "I'd have said, 'that's just not how economics works'."
Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models.
Somehow we got into a place where policy is made on the explicit assumption that the Federal Reserve Bank is in possession of a mystical lever, a single number that they can change to steer the behavior of more than 300 million people. As a layperson, it's incredibly obvious that interest rates are but a single variable in an enormously complex equation that we have no hope of recreating in a spreadsheet, but somehow that comes as a surprise to the professionals.
Arguably, the more people, the better you can model aggregates. Just as with the gas equation - it works because there are so many molecules that individual idiosyncrasies are smoothed out.
And, so, yes, there have been regularities observed (that make theoretical sense, also); and when those break down, that is worthy of note and investigation. You can't just point to "oh, it's people", rather you should try to figure out what's systematically different this time.
> in possession of a mystical lever, a single number that they can change to steer the behavior
Federal Reserve has more than one lever. They set bank reserve ratios. They engage in outright buying of underwater (mispriced) paper through quantitative easing. They created a new program this year to swap SVB's mispriced bond holdings at par.
It's time to reel in Federal Reserve and reel in government deficit spending.
They can also change initial margin requirements (Reg T), but this hasn't been done in decades. Neither have reserve requirements been changed since they were dropped to zero in the wake of the GFC.
They do have a few numbers though. The Federal Funds rate isn't actually directly set by them, but rather, targeted, using other policy to "enforce" that target (in the form of open market operations -- buying and selling securities)
For what it's worth, it's amusing that they talk about the FF rate at all, given how vacant the market itself has been since the GFC (down to about $100B/night), as few care to engage in unsecured lending in the first place now that we all are painfully aware of counter-party risk. They do, however, directly set the reverse repo rate, the discount window rate (aka Primary Credit), and the prime rate (though, how much prime matters these days is a matter for debate).
Thanks for the reminder! I recall Fed was involved with something in reverse repo 6 months before virus blew up.
Federal Reserve has so many levers it becomes questionable that anyone understands medium to long term impacts. And FDIC works closely with Fed on bank bailouts like SVB.
>Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models.
It’s funny that you bring this up, because this idea that the the power brokers forgot that their models were simplistic models of human behavior instead now thought of them as full, bidirectional descriptions of behavior is the thesis of many Adam Curtis documentaries. I’m thinking about the The Trap in particular.
>interest rates are but a single variable in an enormously complex equation that we have no hope of recreating
Or rather it's not even an equation. My decision whether to put off buying an iPhone if interest rates doesn't map to one really. Which doesn't stop people trying to estimate such probabilities with equations but it's a mistake to not recognise they are crude estimates of human behaviour.
I studied economics and totally agree with your mom. Because a very important aspect in economics is trust, which cannot be modeled and can change overnight.
“If you want to slow down the economy by 15% then raise interest rates by n basis points, have these 4 people from your senior admin do a press tour, leak the following information ‘accidentally’ on YouTube, and wait 8 to 10 weeks for results”.
> This "YOLO" attitude towards money bucks the spending trends of past economic downturns
The 5.1% annualized GDP growth rate last quarter also bucks the trends of past economic downturns.
If neither aggregate output nor consumer behavior are acting like a downturn, maybe the thing that should be surprising is the description that there is an "economic downturn".
If you own a house with a fixed rate mortgage then inflation will have a heavily muted effect on your personal financial situation since your (most likely) largest expense isn't effected.
However, people look around and see that they can't afford to move to a different house of similar size/quality because prices and interest rates are so high. And they definitely can't afford to move out of that starter house into something with an extra bedroom so they can start a family or take care of an aging parent.
This creates a deep sense of instability and the sensation that you are stuck where you are, and people generally don't like feeling unstable or stuck.
I truly believe 99% of the economic woe in America can be traced back to the lack of housing.
The Month over Month inflation may be low, but since 2020 it's been 20%, and suffice to say a majority of the working population has not gotten a 20% wage increase since then
Everyone I know who has changed jobs has gotten 30%+ raises in my circle. Very few people I know still work where they worked in 2019. The few that do are either very poor, or very wealthy.
In the modern economy, you don't get raises anymore, you get a new job every 2-3 years. Anyone who is upset that they haven't gotten raises to keep up with inflation has only themselves to blame.
I don't see debt being mentioned and I wonder how much economic activity is shuffling debt around e.g. if someone buys a car with credit but can't keep up with payments so has to sell it at a loss, it probably looks great on economic dashboards - two cars have been sold! In real life, it really sucked though.
A side note - I am a little wary at how frequently economic figures have been revised recently. It makes suspicious when people are surprised at good news that seems to go against sentiment. I fear that in a couple of years time, the Fed might discover Dave's spreadsheet included December twice or something.
> A side note - I am a little wary at how frequently economic figures have been revised recently.
They aren't revised any more often than normal, nor are the revisions large.
> It makes suspicious when people are surprised at good news that seems to go against sentiment.
The aspects if sentiment that historically vary closely with conditions (e.g., the current conditions portion of consumer confidence) are as consistent with recent good news as they have been with econonic news historically. The future expectations portion of consumer confidence, and aggregate “sentiment” measures that don't break out components, may seem inconsistent with current news, but that's also not historically unusual.
Recent UK and German revisions radically changed the economic narratives. The UK revision moved from the worst performing economy of the G7 with a shrinking economy to a growing economy. German revisions reclassified it's economy as in recession.
Wages may have risen on the low end, but it's really difficult to find a job in many professions and the pay has dropped substantially. My LinkedIn feed is full of unemployed engineers, recruiters, etc. Layoffs are also continuing, but are no longer big enough to make the news.
The "recruitinghell" subreddit highlights many of these problems.
I'm surprised they're surprised. Inflation makes people want to buy things before they get more expensive. Even if inflation cools prices will never be this low, and savings will be worth less tomorrow than today.
This effect was observed in Weimar Germany also, during absolutely insane inflationary times. History books tell the tale as though people rationally bought things because they held value more than cash, but now having lived through this relatively smaller inflationary era, I wonder if there's more to it, and it's a more subconscious thing.
Are we in the ‘it’s time to start worrying’ phase? When you think about this more and more often, which I personally am, what types of discussions should we start having?
We are not in any particularly worrisome period. The reason you are thinking more often about this is that we're in a "vibecession" where the media are all being unusually negative about everything.
This is causing historically strange results in financial surveys right now where everyone says they personally are doing fine but that they also think the economy is bad because they heard they were supposed to think that.
What kind of jobs are you looking for? The unemployment rate is fairly high so there are of course fewer jobs overall compared to the number of applicants.
If you ask the consumer finance media, it’s always time to start worrying. Worrying sells and breeds more worry.
I’m not being dismissive of the odd situation we are living through, but I’ve not found the worry level of other people to be that helpful a guide. Those preppers with bugout bags are still waiting to be proven right.
I dont think so. I've been hearing that it's a time to worry for over 20 years, thru three major once in a lifetime events. If none of those were a time to worry, I dont see why this is.
In the end the next time the billionaires blow the thing up, they'll get a bailout and I'll get a haircut, so I might as well get my slice of the pie now.
For all the crowing, the implosion from consumer debt has never come, I suspect part of why debt keeps rising is harder to obtain bankruptcy.
I think that logic is usually applied to deflation and why it is so insidious (wait to spend and tomorrow will be even cheaper, grinding economy to a halt).
The inverse for inflation seems possible, but somewhat flawed because you will need even more money in general in the future, so hoarding cash to grow it could also be an impulse.
I feel like Keegan’s baby sitting coop has some parallels to the “unexpected” outcomes from human responses to market forces
Yeah, you haven't lived through actual inflation. In Argentina we're used to "buy it now because it will be more expensive next month". My laptop is more expensive used on mercadolibre than what I paid for it brand new 5 years ago.
In the US they have 5% inflation rather than 200% but the effect is still true, just less strong.
I have had the thought that I should buy 'luxuries' that I've been saving for, before they get unaffordable again, even if it makes things a little tighter than I'd like in the near term.
Feel free to going into detail about what exactly this applies to.
I’m not talking about buying a house that is considered an appreciating asset. I mean going to dinner and buying clothes and other disposable goods/services.
So you spend excessively on clothes and eating out and traveling because it’s going to get more expensive next year, despite now getting paid 4-5% for cash when that hasn’t been true for almost 20+ years?
I can understand this about an appreciating asset like a house, not buying clothes and trinkets.
I took out some loans in 2020-2022 to buy a car, go on vacation, buy some synthesizers, gamble on crypto. I figured loan rates would go up so get them while the money was cheap.
1. Inflation benefits spending now. What you want is only getting more expensive. Also, any debt you have is having its real value reduced without you having to do anything so why pay it off? and
2. Despair. For a lot of people, they're struggling to make ends meet. There is no concept of saving for the future or even being able to retire. For an increasing number of people the stability of home ownership is increasingly out of reach. The retirement plan for these people is simply to die in debt. Plus people think about their mortality when you go through a pandemic where over a million Americans died and there was massive disruption to people's lives. The real spending power of people has also been eaten away by the rising cost of necessities (which the article mentions).
Agreed. I dont think im alone in feeling like the future world wont be something i want to live in at all. The future and present seems so incredibly dark to me. I see no motivation to be saving with a long-term perspective. Savings and asset can be taken from me or evaporate, but what i experience right now cannot be.
BNPL seem to be about 4 weeks — isn’t that about the grace period for a paid off credit card? If anything I thinking you charge at the beginning of a cycle, you get 7 weeks? Am I misunderstanding?
I heard on Planet Money how consumer sentiment is down in the Michigan survey, and I am really wondering if there is a bias in how the survey is run. With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era?
>With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era?
All well-run surveys will apply weights to responses when calculating rates so the results reflect what would be if the participants were a "perfectly distributed" sampling across groups.
The article links to another article[0] for the consumer sentiment survey. The linked article says this:
>Methodology
>Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,000 U.S. adults. The margin of error for total respondents is +/-2.43 percentage points. Fieldwork was undertaken between September 28 – October 6, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
2000 isn't a bad sample size for the basic analysis done. But I wish they'd include errors when comparing subgroups. Some of these differences are probably not statistically significant.
YouGov draws participants from a pool of people who've already been recruited and tracked[1]. I haven't found a good explanation of how they recruit or retain them, and don't feel like spending much more time on it.
There's one last red flag with the survey quoted in the Bank Rate, and it qualifies for my rule of thumb to ignore the article: the survey is not linked. I'd be happy with just the methodology, executive summary, and technical notes. Otherwise, I assume anyone quoting a survey they could but won't share isn't being totally honest.
You can make adjustments for response bias, but as the bias increases, the adjustments have to as well. That amplifies error bars, which makes the insights less useful.
Headline measures (like the overall consumer confidence index, or even the two major components of it), don't tell you much (the current situation portion tells you the same story as other broad economic indicators, the future expectations portion has been pure noise for a very long time.) I think some of the detailed components (current family situation and 6-month family expectation, for instance) do have some signal and are less a reflection of (social or other) media noise.
The United States has $1.08T cumulative credit card debt. Somehow, we've managed to give trillions away to business owners for fucking up their own finances, but individuals should be left to rot in the sun under insanely usurious rates.
I'm not saying it's right. I'm just saying that the only reason that one set of bad decisions gets alleviated and the other one doesn't is because of who donates what. Wiping out that balance would also obliterate a lot of retail banks.
There was an uptick in failure to pay credit card bills recently (don't have a graph) but that just means it went from "unusually low" to "same as 2019".
GDP calculations in the U.S. are not relevant to debt holders. It would be like saying everyone in the U.S. is wealthy when it's the top 1% that own the vast majority of that wealth.
That is not /more/ true in 2023 than it was in 2019, so it isn't a problem for a quick look at trends. I would've linked a median household graph if I had one, but there are some median numbers here and they're good; keyword is "leverage ratio".
It also might be a difference in wages vs. income, because income counts welfare programs and those were unusually generous (but temporary) in 2020; we should bring that back but it's not due to the economy getting worse.
But you can see it says debt ratios are low.
> Median household leverage - measuring a family's total debt against its total assets - sank to the lowest in 20 years at 29.2%. Meanwhile, the median payment-to-income ratio dropped to a record-low 13.4%, and the fraction of families with payment-to-income ratios greater than 40% fell 0.9 percentage point to 6.5%, also a record low.
The question to start asking, pretty soon, is if the booming economy means that the Fed is going to have to raise rates and step on the brake pedal even harder?
Pretty soon sentiment is likely to shift towards "good news is bad news" if inflation starts to tick up again. Everyone is talking about how hiring is good and people are spending all kinds of money, that means more money chasing goods, which is going to be inflationary. Again.
And we know what the Fed's views are on inflation.
Meanwhile CMBS continues to slowly melt down as loans hit maturity dates and fail to pay off and debt service triples on them. Distressed office loans have increased from 3% a year ago to over 10.5% now. And across the economy, all the bad bets of the ZIRP era are finally getting stress tested.
The federal interest rate applies to loans, so the main first order effect for consumers is via mortgage rates and car loans. However, home sales are low because prices have been sticky despite the higher interest rates, leading to far fewer sales as people can't afford the higher mortgage costs. Meanwhile, people who already own houses are completely insulated from mortgage rate changes.
So, consumer spending is relatively insulated from first order effects of the federal interest rate, especially for existing homeowners.
You're only insulated so long as don't have to move. Very few people stay in 1 house for thirty years. If you own a house you are now stuck there - hope you don't need to move for a new job, hope you don't want to have another kid, hope your parents don't age into needing substantially more care, etc.
(also seems kinda weird to measure this with black Friday sales... Which could simply be an indicator of people trying to get further with the money they have by spending less during non sale periods. But I assume there's more evidence than what's at the top of the article.)
No, but consumer spending on black Friday is the top-line metric reported in the article.
And my point is that not spending on houses (combined with the bonus of fixed rate mortgages for those who got them before the rate hikes) means there's more cash around for so called "Yolo" expenditures.
What if much Black Friday spending is buying stuff cheaper they would have needed anyway? That would be in line with a frugal outlook. People being savvy consumers.
Yeah I got an $80 Chromebook because my kids are breaking one semi annually. Don’t need it now, but there will be a night when they need on and theirs is DOA. Expiring 2029 will get them to college, so buying now seemed worthwhile.
I can tell you why. The same reason everyone blows their paychecks as soon as humanly possible in Venezuela.
Prices go up slow enough but faster than they used to, people slow down their spending because times are tight. Prices go up fast enough, people spend their money before it is worth less than it is right now.
I'm not surprised it baffles economists. Economists are mostly just finance analysts nowadays.
I love being an economist and waking up in a sweat in the middle of the night to a terrifying riddle: “given the base points situation, how do they still decide to pay rent”
Anecdotally, my non-tech peer group have a booming economy thanks to the Inflation Reduction Act, Infrastructure Act, and Chips Act. Business owners are seeing orders go through the roof which they attribute to booming manufacturing, trades and retail. They don't believe it when I say tech is in recession (or at least laying off/reducing headcount).
The massive generational redistribution of wealth means that naturally the interest-rate consumer spending link has changed. Before higher interest rates meant boomers had less to spend after their mortgage, now it means they have more to spend from returns on their investments.
That's not what rational expectations means, it's just a way of saying things are priced in, so that if the price of eggs went up there is probably a good reason for it and it doesn't mean you can go and start an egg business to compete on lower prices.
> economists when people aren’t rational economic actors
This is more "economist selectively chosen by media that is trying to sell a downturn narrative when people don't act like there is an economic downturn when aggregate economic measures also don't show a downturn [...]"
Heck, even the article linked to support "people have drawn down their savings" in this article says notes of the reduced savings rate trend, "When the economy is good — like now, with the unemployment rate seemingly pinned below 4%, or back in the mid-2000s — people are more willing to operate with low levels of savings, because they're confident they're going to keep receiving a paycheck."
People aren't acting like there is a downturn because there isn't a downturn and media that is trying to sell a narrative about there being a downturn and the economists they select to respond are acting shocked that no one is acting like it is a downturn and using that to somehow sell the narrative that its even worse than if it was a downturn where people were acting normally for a downturn.
Credit cards and BNPL are the new subprime mortgage. Yeah the economy is great while everyone is spending like there's no tomorrow, but there will be a time soon enough when it'll be obvious that the trillions of dollars in consumer debt we have racked up simply aren't getting paid back.
Because of social media, and the media - people felt, quite acutely - the very real risks of COVID - basically people felt (with some truth) that they were lucky to escape the pandemic alive, and because of this, are acting in a YOLO way - you saw people behave the same way 100 years ago from the combined effects of the 1918 Flu Pandemic and World War 1 - all over the world, but particularly in the United States.
I dont think we're really fundamentally understanding the real world psychological effects of the Pandemic and the psychological effects of feeling like we were living in an emergency for 18-24 months - and I think it'll likely take a decade or more to really analyze and process this.