What Luxury Handbags and Cruise Ships Say About the Economy
Is the U.S. economy in a recession? Economists aren’t sure what to call it, so they are devising new language for the post-pandemic economy.
What is a “richcession?”
A richcession is an economic downturn where the more well-off feel the economic pain because stock portfolios experience the impact.
Economic downturns typically affect lower income earners the most because they are less likely to have a financial safety net. However, the tight labor market in the service sector is giving them the opportunities and economic security to weather the downturn. The net worth of households in the bottom fifth was 42% higher in the third quarter than at the end of 2019, and up 17% from the end of 2021. (2)
There are layoffs, but for now, they are limited to the tech industry. While tech jobs beyond Silicon Valley are plentiful, the compensation may not be as lucrative as former Meta and Apple employees are accustomed to. Recent layoffs have primarily affected higher-income, white collar workers. The median worker at Meta and Twitter earns more than $200,000 a year.
The decline in stock portfolios is impacting entry-level luxury goods. Sales for Michael Kors and Coach, which are considered to be on the lower end of luxury goods, are declining, and there are signs that higher-income consumers are also downgrading.
Nearly three-quarters of Walmart's gain in grocery market share came from households that make more than $100,000 in annual income, while foot traffic to Whole Foods declined for six consecutive weeks through the end of December.
Cruise ships have seen large sales for luxury cruise lines, indicating that wealthier consumers are embracing the value proposition of floating vacations that frequently include food, entertainment, and lodging for one price.
What is a “Rolling Recession”?
A "rolling recession" is where various sectors of the economy are cooling down while others are booming. In some ways, the economy appears to be in a recession. Housing sales have declined, as are corporate earnings, and layoffs plague the tech industry. In other ways, it's nowhere near a recession. Unemployment is at its lowest level in over four decades, and GDP is expanding.
New Economy, New Paradigms
The fact that this discussion is even taking place shows that paradigms are shifting. Up until now, the economy confounded many experts. Lacking the language to describe it, they created it. While they may still be puzzling over the precise vocabulary, it is a rare opportunity to change how Americans solve economic challenges in 2023.
Photo by Ehimetalor Akhere Unuabona on Unsplash
