From Charlotte.com (Consumers will still spend, economist says):
Don't pay much attention when consumers say they'll stop spending, because chances are they won't.
That's the message Craig Wright, chief economist with RBC Financial Group, gave Wednesday, speaking about the glum U.S. consumer confidence report released this week.
Wright spoke at the bank's Economic Forecast Luncheon, held at the Charlotte Country Club. He told attendees they should expect the southeast's economy to grow moderately in 2006, similar to this year.
It sounds like Mr. Wright is using my naive macro forecast model: tomorrow will be much like today(and you can call me mister wrong). Why do the local business-types eat this macro forecast stuff up?
Yes, higher energy prices will dampen spending, by businesses and consumers.
But as long as the economy creates jobs, and as long as employees feel they can count on their incomes, they'll shop, Wright said.
...
"What's the tipping point where consumers stop spending? Are we there?" he said. "I don't think so."
That's the problem. No one can predict when the direction of a variable as complex as aggregate consumer spending will change.
And I declare a ban on the use of the words "tipping point." Does everyone need to use it?
Wright doesn't see a local housing bubble, but Charlotte-area homes have grown less affordable when income levels are considered, he said.
Good news is on the horizon: China is expected to slow its growth by a couple of percentage points, which will reduce demand for oil. He sees the price of a barrel of oil dropping from its current $66 to the mid-to-low $50s by the end of next year.
If China's growth slows, that decreases their import demand, increases our trade deficit, puts more depreciation pressure on the dollar, increasing the chance that China will diversify their portfolio by selling their U.S. bonds, triggering a worldwide bond selloff, increasing U.S. interest rates, decreasing U.S. investment spending that triggers a recession in the U.S. (I've always wanted to write that train of logic; of course, the magnitudes of these changes need to be big to trigger a recession).
And, what's the phrase in finance? Sell short? Oil futures. Now!