WILMINGTON —Signs still point toward a recession on the way, but one expert says it’s becoming less likely to happen anytime soon as consumers remain unfazed by inflation while interest rates continue to hold steady.
A leading regional economist addressed state business leaders Feb. 18 and confirmed the new trajectory of the nation’s economy during the annual economic summit for the New Castle County Chamber of Commerce at the Hyatt Place Wilmington Riverfront.
Anirban Basu, the CEO of Baltimore-based Sage Policy Group, said several major areas of concern point to a recession sooner than most anticipate, such as inflation which is now clocking in at a 2% increase each year, labor disputes which result in unions negotiating higher wages, dramatic changes in immigration and tariffs policy which could reshape the workforce as well consumer, increasing manufacturing costs and the shrinking possibility of interest rate cuts that would lead to companies passing the cost to consumers.
That is, if it was not for the continued spending of customers, he said.
“At the heart of this is the final force, the American consumer,” Basu said. “They have been on a spending tear. It is true that general retail sales are not great, but the consumer has been undeterred by these higher interest rates. Much of the growth has not been on items but on services. It’s a new record of people passing through the TSA checkpoints on a single day.”
Since 2020, consumers have been eager to spend cash as soon as pay day arrives – the U.S. Census Bureau data shows that retail sales continue to climb each year since. In 2024, customers spent $700 billion on retail goods — a quarter century record.
“You cannot have an economic downturn unless the consumer participates,” Basu said. “The consumer is seldom the instigator of a downturn, and that was the case when the commercial real estate collapsed in the 1980s, the dot com bubble burst, the housing bubble burst and the COVID pandemic. Right now, the consumer continues to spend.”
While interest rates were rising, Americans became wealthier, Basu noted. The Federal Reserve reported that American households had $20 trillion in wealth in 1990. Last year, that became $160 trillion, but the wealthiest families, the top 1%, control roughly a third of the nation’s wealth.
“It’s not my role to criticize that. But what do you need when you have a nation with such chasms in wealth, such disparities in wealth?” Basu said. “You need an equalizer.”
That equalizer is the labor market. There are signs that the labor market is normalizing in a post-pandemic world, but the nation’s unemployment rate has grown 50 basis points in the past four years. But that’s not because people can’t find work – Basu said it’s quite the opposite. There are more jobs being added than can be filled and there have been strikes where hundreds of thousands of jobs have been added each month.
By the end of 2024, there were 7.6 million jobs across the country that were still hiring. But, Basu noted, this is one problem Delaware is not struggling with as much as others in the country.
Between February 2020 and December 2024, the state added 21,000 jobs with much of that growth in the Wilmington metropolitan area. More jobs are traditionally added in growing areas – and Delaware’s population continued as more people started to move out of the cities and to less expensive areas .
There are also other mixed messages, like the S&P 500 and Nasdaq Composite breaking major thresholds like 6,000 and 20,000 marks respectively while Southwest Airlines announced its first layoffs in corporate history earlier this month. But what Basu looked at closely was the amount of money consumers had saved and the nature of their debt.
Personal savings in American households were on a steady upward trend for years until COVID changed how people work and the government supplied a series of stimulus checks to ensure the economy kept humming along. Between 2020 and mid-2021, Americans had accumulated $2.1 trillion in savings, according to Fed data. In the next two years, they spent $2.4 trillion in savings.
Credit card debt also eclipsed $1.2 trillion for the first time at the end of 2024, and home prices continue to rise and there are now fewer home buyers willing to engage with the market, based on the continued drop in mortgage loan applications.
“I spoke to a group of apartment managers in Maryland, and they told me, not surprisingly, we’re starting to see more people miss their monthly rent,” Basu said. “More households are under stress.”
Given that landscape, Basu predicted that there is the possibility of a recession with inflation set to stage a comeback. He also predicted that the Fed was unlikely to make interest rate cuts this year, as many economists predicted four of such cuts would likely happen with former Vice President Harris in the White House and only one with President Trump.
“At this stage, many consumers will be exhausted financially and I’m not talking about the wealthiest Americans. It’s about 50% that are. What comes up, must come down,” Basu said.
