Reports of strong sales on Black Friday and Cyber Monday have strengthened the case that consumers will continue to be the engine of growth for the U.S. economy. The resilience of the American consumer, goes the theory, will stave off a recession.
That confidence may be misplaced.
There are two problems with putting too much faith in consumer-driven growth. First, as my colleague John Authers has observed, the underlying strength is slowing. Second, consumers are traditionally lagging indicators of economic weakness. Business cycles are driven by investment in housing and business. By the time consumer spending begins to weaken, it is too late.
And consumer spending, like overall GDP, peaked in mid-2018 and has been declining ever since. The decline has been shallower than that of business investment, so consumer spending has exerted a moderating force on overall growth. But the trajectory is still downward, and it is nearing levels that prevailed in 2016 and 2017.