Decline of consumer spending causes a recession – policy change that causes job loss or attitude shifts risk decline.

The more likely cause of a downturn this year is a sharp cutback by consumers. I cautioned in my earlier consumer spending forecast that growth of spending is significantly greater than growth of incomes. There are always grumpy people complaining that others are spending beyond their means, but the aggregate data don’t support that hypothesis. However, over the course of 2017 the savings rate has dropped as consumers’ lower income growth did not trigger slower spending growth. And note this discussion is about growth rates, not the actual level of spending. I think it’s likely consumers will cut back a little, with a risk that they cut back a lot. The usual trigger of spending reductions is loss of jobs—not happening lately, and not going to happen unless something else is the cause. Consumers might also cut back on spending if interest rates rise sharply, though that does not seem likely. Attitudes might turn negative, if there were some precipitating factor—but what could that be? Consumers have watched the country’s politics turn increasingly acrimonious, have watched a hugely divisive president, and have seen Oklahoma lose the Rose Bowl, and yet all the recent indicators of attitudes remain elevated.