- Economist David Rosenberg said spending-heavy consumers are starting to back away from “entertainment and gaming.”
- Discretionary spending is already weak in areas other than travel, according to Fed data.
- This is a problem for the economy because these so-called YOLO spenders have supported growth.
The U.S. economy could weaken next year as so-called YOLO spenders (an abbreviation for “you only live once”) who once propped up the economy with pandemic relief funds are now cutting back on “entertainment and games,” according to researchers. . To top economist David Rosenberg.
“I think it's going to be a weak story next year,” Rosenberg said in an interview with CNBC on Tuesday, pointing to signs in the Fed's Beige Book that U.S. consumers are finally scaling back discretionary spending.
Rosenberg said spending on so-called “entertainment and gaming” has slowed in areas other than cruise ships and air travel, which is likely to cause problems for the economy in the coming months. YOLO purchases helped prop up the economy through the years of the pandemic, and the U.S. economy was “flat as a pancake” after the effects of the past four quarters, Rosenberg said.
Other experts warn that the U.S. economy is already starting to weaken. Rosenberg said that although GDP grew in the second quarter, real gross domestic income is already in recession, and that measure has shrunk over the past two quarters.
That's another reason to suspect consumers will continue to hold off on bucket list purchases over the next year.
Rosenberg compared the current economic environment to that of 2007, when the market incorrectly assumed that the wealth generated from the housing market would prevent the U.S. from sliding into recession.
“To me, just because a recession in the classical sense has not yet arrived does not mean that the business cycle has not been resolved and that a lag from policy rates will not cause a recession. “It's a foolhardy proposition,” Rosenberg added.
Markets have been concerned about the possibility of a recession over the past year as the Federal Reserve aggressively raised interest rates to curb inflation. Experts have warned that high interest rates could send the economy into a slump, and the Fed is expected to raise rates by another 25 basis points at the end of Wednesday's policy meeting.
