The US economy is weakening as YOLO spenders pull back from 'fun and games,' economist David Rosenberg says
- Consumers that are eager to spend are starting to pull back on "fun and games," economist David Rosenberg said.
- Discretionary spending has already weakened in areas other than travel, Fed data shows.
The US economy could weaken in the coming year, as so-called YOLO spenders (shorthand for "you only live once) who were once propping up the economy with pandemic stimulus money are now starting to pull back on "fun and games," according to top economist David Rosenberg.
"I think it's going to be a weak story for the next year," Rosenberg said in an interview with CNBC on Tuesday, pointing to signs in the Fed's Beige Book that American consumers are finally dialing back on discretionary spending.
So-called "fun and games" spending has softened in areas outside of cruise lines and air travel, Rosenberg said, which likely spells trouble for the economy in the coming months. YOLO purchases helped prop up the economy through the pandemic years – and when subtracting their impact over the last four quarters, the US economy was "as flat as a pancake," Rosenberg said.
Other experts have warned the US economy is already starting to turn sluggish. Though GDP grew in the second quarter, real gross domestic income has already fallen into a recession, Rosenberg said, with the measure shrinking over the last two quarters.
That's another reason to suspect that consumers will continue to pull back on bucket list purchases over the next year.
Rosenberg compared the current economic environment to that of 2007, when markets falsely assumed that wealth generated from the housing market would prevent the US from tipping into a recession.
"Just because a recession is not here yet in a classical sense, to say that the business cycle has not been repealed and that the lags from the policy interest rate … isn't going to cause a recession … is a reckless proposition to me," Rosenberg added.
Markets have been fretting over a potential recession for the past year, as the Fed aggressively hiked interest rates to control inflation. High rates threaten to tip the economy into a downturn, experts warn, and the Fed is expected to raise interest rates by another 25 basis-points at the conclusion of its policy meeting on Wednesday.