Next year, the U.S. economy should be able to escape a recession, but economist Carl Weinberg says one of the biggest dangers to that outcome is a significant decline in consumer spending.

The chief economist of High Frequency Economics highlighted that consumers are realizing they're financing their spending by accumulating credit card debt, with exorbitant and uncontrollable interest rates. This realization is expected to prompt a retrenchment in consumer spending as we enter the new year.

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Next year, the U.S. economy should be able to escape a recession, but economist Carl Weinberg says one of the biggest dangers to that outcome is a significant decline in consumer spending.

Weinberg expressed concern about the potential risk to consumers, pointing to data from the New York Federal Reserve indicating an increase in delinquencies on credit cards. He highlighted that real incomes have only recently started recovering, and the increase may not be sufficient to cover the growing debt burdens.

Weinberg identified consumer credit cards as a potential downside risk to the optimistic economic forecast, emphasizing the need for careful monitoring.

Goldilocks' Scenario and Concerns for the US Economy

A situation known as "Goldilocks" occurs when an economy is expanding just enough to prevent a recession and a blow to the labor market, but not rapidly enough to cause inflation.

According to Monica Defend, head of the Amundi Investment Institute, the base case is a U.S. recession in the first half of 2019.

Defend expressed concern about the impact of financing and financial conditions on the U.S. consumer, noting that the progressive depletion of excess savings from 2023 could lead to a slowdown in consumption. He highlighted the ongoing cooling of the labor market and predicted a technical recession in the United States during the first and second quarters.

Interest rate increases, in the opinion of many strategists, have allowed the US economy to "soft land." Despite this, they continue to be concerned about the prognosis for 2024 since they caution against the unexpected and delayed effects of higher rates.

This year, the U.S. economy has continued to develop well as other major economies, such as the euro zone and the U.K. Things have come to a standstill.

Defend said on Wednesday that the investment stimulus provided by programs like the Inflation Reduction Act will not be sufficient to counteract the downturn in consumption.

The speaker emphasized the substantial government transfers into households during the pandemic, leading to peak saving rates. However, she expressed concern that the saving rates are now declining, indicating the depletion of excess savings. Due to this trend, she does not anticipate the U.S. consumer maintaining the same levels experienced over the last two years.

Read Also: US Inflation Expected to Ease Further, Recession Fears Diminish

Surge in Credit Counseling Demand Signals Financial Distress

There is a consistent increase in the number of people seeking credit counseling services, particularly Gen Zers and millennials. The average new client at the nonprofit financial counseling organization Money Management International has around $30,000 in unsecured debt-which includes credit card debt-up from roughly $20,000 at the beginning of 2022.

Around the holidays, credit counselors typically see a decrease in clientele as people tend to spend more and cease attempting to manage their debt. This year is not the same.

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