It seems we live in an economy that doesn’t make that much sense. There are so many conflicting trends. Interest rates are rising but employment is resilient, as is spending.
“Things haven’t moved in the same concerted way as they have in the past,” said Damon Jones, an economist at the University of Chicago.
People don’t just spend on basic necessities like housing, gas and health care – things that are badly affected by inflation. They also have fun, eat out and travel. It’s almost like a tale of two consumers.
“Well, there are 330 million people in the US. You know, you’re not going to be able to throw a blanket on everyone under a given financial situation,” said Greg McBride, an analyst at Bankrate.
It is becoming increasingly difficult to explain consumer behavior because the gap between those who can keep up with rising costs and those who cannot is widening. Some are sitting on substantial savings and others are in debt.
“It’s not just credit card spend, it’s the amount that’s actually being revolved that’s going up,” McBride said.
However people spend money, it’s still a mystery as to why they keep spending. Many economists are willing to admit that they just don’t know why. That includes Ori Heffetz, an economist at Cornell.
“I speak to you with an air of humility. We were always surprised.”
Surprised at the quick recovery, surprised that inflation is so stubborn, and surprised that despite everyone’s bad mood, they’re still spending.
“It could be a new economy in many ways,” Heffetz said.
Economists make predictions based on history, and history tells us very little about this moment. Maybe something bigger is happening here. Maybe we’re just too close to see it.
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