The U.S. Economy: Challenges Amidst Resilience

As we navigate the evolving landscape of the American economy, it's evident that while challenges persist, the doomsday predictions of a collapse seem far-fetched. Yes, retail giants like Macy's and Dick's Sporting Goods have raised concerns about declining profits, and it's true that some economic indicators are raising eyebrows. However, a closer look reveals a more nuanced story.

Consumer spending, often a vital driver of the US economy, is showing a shift. People are spending less on tangible goods like running shoes, laptops, and dishwashers and instead investing in experiences. Cocert tickets for artists like Taylor Swift and Beyoncé are flying off the shelves, and travel-related expenses are seeing an uptick as folks book flights, hotels, and Ubers for long-awaited getaways.

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This shift is significant because approximately two-thirds of US GDP stems from consumer spending. While it's not business as usual, it's not the economic apocalypse either. As Chris Rupkey, chief economist of FwdBonds, suggests, GDP projections are exceeding expectations, pointing to a potentially robust economic growth quarter on the horizon.

The Atlanta Federal Reserve's GDPNow prediction underscores this optimism, forecasting a 5.8% annualized GDP growth rate for the third quarter, double that of the previous year. This indicates that consumers, far from being financially strapped, are merely adjusting their spending habits. They are directing their discretionary income towards experiences rather than merchandise.

While inflation has raised concerns and prompted more cautious spending, retailers like Walmart, Amazon, and TJ Maxx have adapted by offering discounts, resulting in revenue increases in the second quarter. In essence, consumers are not retreating; they're being discerning about their purchases.

It is necessary to consider the concerns raised by Dick's and Macy's in the context of a rapidly changing economy, such as slow retail sales, credit card delinquencies, and shoplifting. Historically, these indicators have signaled economic trouble, but they have typically coincided with rising unemployment, stagnant incomes, and reduced consumption across the board.

In 2023, we will see none of these ominous signs. Pay is on the rise, inflation rates are falling, and despite the Federal Reserve's repeated interest rate hikes to manage consumer demand, unemployment remains near historic lows.

Even the issue of burgeoning credit card debt, which Macy's highlighted, requires a nuanced perspective. While the unpaid credit card debt is high compared to two years ago, it remains low as a percentage of total credit card debt. Moreover, the fact that American credit card balances reached $1 trillion in the second quarter suggests consumers are optimistic about their ability to repay.

The economy is not without challenges, including increased credit card and vehicle loan debt, reduced savings, and the impending resumption of student loan payments for millions. However, as Deutsche Bank's senior US economist Brett Ryan points out, the economy seems to have some momentum heading into these headwinds.