What You Need to Know
- Shilling says consumers are “very cautious,” not a good sign for a consumer-led economy.
- The housing market is beginning to cool, the economist and advisor says.
- He says the stock market is vulnerable to a correction, cryptocurrencies to a government clampdown.
Don’t expect a rip-roaring second-half economic surge, says economist and investment advisor Gary Shilling.
“The consumer in this country is very cautious,” he says, noting the 1.3% drop in May retail sales and the growing decline in spending levels of government stimulus checks.
The Federal Reserve Bank of New York reported that consumers on average spent 24.7% of their stimulus checks from this March compared with 25.5% of their January 2021 checks and 29.2% of their checks from last June, choosing instead to save more and in January especially to pay down debt.
“People spent only a fraction of their stimulus checks and there was no follow-through,” said Shilling. “People are really scared.”
In an economy supported by consumer spending — it accounts for about 70% of GDP — such fears cannot be dismissed, according to Shilling. He’s watching to see if the softness in retail sales continues.
“If we don’t see enough of a pickup in spending on services to offset ongoing weakness in spending on goods that tells you the consumer is retrenching,” he says.
In May, that shift from goods spending to services spending was not enough to prevent retail sales from declining from April levels.
Another area where Shilling sees strength declining is the housing market, which has been surging. “It’s beginning to cool,” says Shilling. “How cool remains to be seen, but the speculation exceeds any rational limits on the upside.”
The housing buying “frenzy,” as Shilling calls it, has been fueled by an insufficient supply to meet demand due to shortages of building materials, builders slowing production after the the housing market collapse during the 2008 subprime mortgage crisis and many homeowners choosing to stay put during these uncertain times, which limited existing home sale inventories.