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Jared Dillian

Inflation's 'Fun' Period Was Way Too Brief

Rising prices are initially good for the economy because activity tends to pick up and wage growth accelerates. The trick is not to be fooled by the resulting boost to nominal GDP.

Consumers are spending, but they’re not happy about it. 

Consumers are spending, but they’re not happy about it. 

Photographer: David Paul Morris/Bloomberg via Getty Images

Consumer confidence has tanked, with the University of Michigan’s widely followed sentiment index at its lowest since 2011. This is incongruous with the fact that the labor market is very hot. The last time confidence was this low the unemployment rate was 9% and people were worried about the potential for a “double-dip” recession so soon after the global financial crisis. Now, the unemployment rate is a miniscule 3.6%. And although things are slowing, consumer spending – which accounts for two-thirds of the economy - is strong.

I went to the local Tanger Outlets shopping mall in Myrtle Beach, South Carolina, to kill some time over the weekend and look for gym shorts. Most of the stores were busy. You wouldn’t see that if people were pessimistic about the outlook for jobs. We’ve been hearing from smart Wall Street types that the economy is slowing, and that we have an increased probability of a recession, but when it comes to consumption, I just don’t see it. And good luck buying a house without going up against competing bidders even with the jump in mortgage rates.