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What a difference a year makes.
The most consensus call going into 2023 was the US would fall into recession. Whether you were Jamie Dimon, Ray Dalio, or Elon Musk, everyone and their mother expected an economic contraction this year.
But then something remarkable happened; the recession never came…
…and people are mad about that. Let’s dig into why.
The Bears are Loud (But Usually Wrong)
Back in June, I told you that the US economy was looking surpsiingly strong.
I also noted it was clear we were not yet in recession. And the reaction to this news was surprising.
In fact, people were downright angry that I said we weren’t in recession! It was the same story when I posted this video to my 100,000 Instagram followers on Monday:
I understand why people have this reaction. For one, people are constantly innundated with claims that we are in recession…
...even if these claims are not based in reality:
Second, Americans are in a “friendship recession.” The number of Americans claiming they have few close friends has plummeted since 1990:
While at the same time, Gen Z reported feelings of loneliness at a much higher rate than previous generations:
Even if the economy is doing well, it doesn’t matter if people “feel” lonely and isolated. And no amount of economic growth will change that.
Lastly, the main driver of feelings of economic inadequacy is the fact that Americans have lost 23% of their purchasing power in the last four years due to inflation:
And unfortunately, prices are not going down any time soon… although they are going up at a slower rate (someone should explain this concept to President Biden):
Because while the US has issues - particularly a social and leadership crisis - there is little-to-no evidence the economy is in recession.
Recession Calls Remain Hollow
It’s a fact inflation has eaten a lot of consumers purchasing power.
But it’s also true that inflation-adjusted wages have outpaced inflation in the US.
And not just for the rich. In fact, the bottom 10% of earners have seen higher wage growth than the top 10% since January 2020:
The only cohort who has not kept up with inflation are those in the top 10% of earners.
Second, American consumers are spending like it’s going out of style. The day after Thanksgiving was the busiest travel day in history, while Black Friday shopping set an all-time record.
Not to mention people are eating out at bars and restaurants at their highest clip in history, which was not the case in the last two recessions (grey lines):
I can already hear you now: “Robert, this is all being funded with credit card debt.”
While it’s true credit card debt is currently at all-time highs…
…it’s important to look at these numbers in context. For instance, we know prices are up +20% since 2020. Therefore, it makes sense for credit card debt to rise 20% as well at minimum.
However, that’s not the case; inflation-adjusted credit card debt is only at 2019 levels. And debt relative to income and net worth is flat over the last decade:
Not to mention that credit card delinquencies - while rising - are still well below levels seen prior to the Global Financial Crisis:
So while credit card debt is at all-time highs, consumers are currently able to service this debt. And when credit card debt is adjusted for inflation, it’s currently at the same level as 2019.
Keep Your Head on a Swivel
With the unemployment rate near a 40-year low, inflation back near the Federal Reserve’s 2% target, and GDP growth was revised higher to a whopping 5.2%…
…there is no evidence the US is in recession.
And while fear mongerers in the media have told you to sell your stocks due to the recession that never came, a US dollar collapse, or a housing crash, all of those predictions have fallen flat.
So, in the future when people are making dramatic claims about the economy, remember they may be doing so simply for clicks.
And if you ever need an unbiased opinion, you can always come to me.
Stay safe out there,
Robert