Chief Economist of Moody’s Analytics. Host of the Inside Economics podcast. Co-founder of Economy.com. Views expressed here are my own.
Mark Zandi
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Enjoyed joining Stephanie Flanders and Andrew Sacher on
@Bloomberg's Trumponomics podcast last week to dig into a question that's top of mind for many: is the U.S. economy dangerously dependent on the wealthy?
podcasts.apple.com/us/podcast/i...
This is a big economic blow, but deficit-financed tax cuts have cushioned it. Until now. As of May 16th, the bigger tax refunds Americans have received this year no longer cover the higher costs of gasoline, diesel, and jet fuel caused by the war.
And of all of this, with the benefit of massive deficit-financed tax cuts, which are now fading fast. The Iran war needs to end, and the Strait of Hormuz needs to be reopened soon, or recession will become more likely than not.
$100 billion. That’s our estimate of the cost of the Iran War to American households. That’s nearly $750 per household. This includes the additional U.S. military costs and the higher energy and other prices resulting from the war.
And then, of course, there is the surge in inflation, which is closing in on 4%, double the Federal Reserve’s target.
The economy isn’t just soft, it’s struggling. That's the clear message in the flood of economic data released today.
Ordered from least to most worrisome:
First-quarter real GDP was revised down to just 1.6% and this includes the bounce back from the government shutdown at the end of last year.
Then there is the durable goods report, which showed a decline in core capital goods in April. The decline comes after some strong readings, but it's still not great. New home sales were also weaker than expected, as higher mortgage rates overwhelmed homebuilders’ incentives.
Then there was the decline in real disposable income and another sharp decline in the personal saving rate, which has only been briefly lower in the housing bubble twenty years ago. Consumers are running out of financial resources to maintain their spending, which stalled out last month.
Financial pressure is mounting quickly, particularly on mid and low-income households. With the saving rate about as low as it ever goes, unless the war ends soon and energy prices come down, they will have little choice but to rein in their spending, weighing further on the already sagging economy.
