Business & Finance
Economist Gary Shilling warns consumer stress points to potential US recession
Citing declining retail sales, record debt levels, and shifting spending patterns, the forecaster estimates a 60% to 70% probability of a downturn within 12 months.
The short version
- Economist Gary Shilling warned that strained consumer finances could trigger a US recession or stagflation within the next year, estimating a 60% to 70% probability.
- Households face pressure from persistent inflation, elevated interest rates, and high energy costs, leading to decreased savings and record debt.
- Retail trends reflect consumer strain, evidenced by reduced overall July sales, slowing spending per transaction at major retailers, and higher comparable sales at discount chains.
- The primary uncertainty is whether consumer spending resilience will further deteriorate enough to drag the broader economy into a formal contraction.
Key facts
- Economist Gary Shilling projects a 60% to 70% chance of a US recession within the next 12 months and warned of the potential for stagflation.[Business Insider]
- US retail sales dropped by 0.6% in July, representing the steepest monthly decline in nearly a year according to Census Bureau data.[Business Insider]
- Total consumer credit liabilities reached a record $5.1 trillion at the end of the first quarter, while bankruptcy filings increased 12% in the year ending in June.[Business Insider]
- The US personal savings rate fell to 3% of disposable personal income in July, a significant decline from more than 9% in July 2021.[Business Insider]
- The University of Michigan's consumer sentiment index fell in August, accompanied by an increase in one-year inflation expectations to roughly 4%.[Business Insider]
- Discount retailers including Dollar Tree, Dollar General, and Five Below saw comparable sales growth over the most recent quarter, while Walmart reported slowing transaction spending growth.[Business Insider]
What remains uncertain
- Whether declining lower- and middle-income consumer spending will overcome ongoing spending among higher earners and result in a formal economic contraction or stagflation remains unknown.[Business Insider]