Recent housing data, including prices, sales, and construction starts, indicate the market is no longer in freefall. However, it has bottomed out at a very weak level, comparable to the financial crisis or the pandemic's peak, with no signs of a strong recovery.
Strong consumer spending over the summer was likely inflated by people purchasing goods they expected to become more expensive due to tariffs. This 'spent-up demand' suggests that future retail sales will weaken as the buying-ahead behavior ends and reverses.
Recent data paints a conflicting picture. While forward-looking indicators for housing and the job market point to a softening economy, inflation metrics like the Producer Price Index (PPI) remain stubbornly high. This combination suggests a move toward a stagflationary environment.
While headline forecasts predict a 3.5% rise in holiday sales, this is nearly entirely offset by inflation, which is running close to 3%. In real terms, consumer spending will be flat at best, meaning the average family's standard of living is declining this holiday season.
To meaningfully reduce wealth inequality, policy should focus on enabling asset accumulation for lower and middle-income families. This includes making homeownership, higher education, childcare, and elder care more affordable and accessible, as these are critical levers for long-term wealth creation.
While the overall debt service ratio appears low, this average is skewed by high-income households with minimal debt. Lower and middle-income families are facing significant financial pressure and rising delinquencies, a critical detail missed when only looking at macroeconomic aggregates.
A conversation with a job candidate from an economics master's program revealed significant anxiety among peers about the difficulty of securing employment. This ground-level anecdote suggests the labor market is tightening even for highly educated, skilled workers, a concerning sign for the broader economy.
Anecdotal evidence suggests even affluent consumers are pulling back on spending, despite a strong stock market. This may be driven by concerns over the weakening job market, as even well-to-do parents worry about their adult children's employment prospects, creating caution across the family unit.