Factors for a Recession, Consumer Questions

Danny Moses recently tweeted a 2007 WSJ article by David Wessel, “Three-Ingredient Recipe for Recession“. In the article Wessel was predicting that the incoming 2008 recession would be caused by three trends:

When we look back next year at this time, it will be clear what caused the recession of 2007-08. It was basically a triple whammy: Housing prices kept falling, oil prices kept rising and both lenders and borrowers grew more cautious after five years of incaution. The combination was simply too much even for the impressively resilient U.S. economy.

Today, David Harrison published this article in WSJ, “U.S. Economy Could Withstand One Shock, but Four at Once?

Among the possible challenges this fall: a broader auto workers strike, a lengthy government shutdown, the resumption of student loan payments and rising oil prices.

Each on its own wouldn’t do too much harm. Together, they could be more damaging, particularly when the economy is already cooling due to high interest rates.

“It’s that quadruple threat of all elements that could disrupt economic activity,” said Gregory Daco, chief economist at EY-Parthenon. 

Jamie Dimon gave a “big but” on the Consumer:

Their incomes have gone up. They’ve got more cash in their checking accounts than pre-COVID. It was a lot more and it’s been coming down. So that excess – what we call the excess savings, seems to be normalizing.

So as we enter the final quarter of the year, these are some of the questions I have in regards to the resilience of the consumer:

How will 7-8% mortgage rates impact the consumer?

Will Oil prices continue to rise and cripple consumer spending?

Auto workers strike, government shut down, student loan repayments restarting, shrinking balance sheets, inflation continuing to edge higher…is now the time that consumers begin to belt tighten and cut back on spending?