Inside Economics: Gen Z is ‘doom spending’... but will the recession hit them hardest?
Welcome back to Inside Economics. Every week, I answer reader questions about the economic forces shaping our world, as well as taking a deeper dive into some of the left-field economic news you may have missed.
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What does recession mean for our everyday lives?
That’s a question I have been asked many times since the ugly “R” word reared its head a week ago. The answer is that the data itself might not mean much at all - unless we panic about it and make it all worse.
For starters, New Zealand was already in a recessionary environment, regardless of how the GDP data landed last week. On a per capita basis the economy shrank by about 3 per cent in 2023.
In contrast, the topline figures (for the two negative quarters we call a technical recession) were -0.3 per cent for September and -0.1 per cent for December.
Your personal experience of the economy is what matters in your life. GDP is very much an aggregate measure of the nation’s economic health. You can lose your job in an economic boom and you can still get a pay rise in a recession.
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But broadly, it means there is less money flowing through the economy. On aggregate, businesses are making lower profits and their focus is on costs.
That can mean lower pay rises, fewer opportunities for promotion or finding a better job - or it can mean losing your job. All that insecurity hits confidence. Consumers spend less, so business profits fall further and we are at risk of a very negative downward spiral.
So how we react to those “recession” headlines matters. It can become self-fulfilling. GDP data itself is backward-looking. The latest data only takes us to the end of 2023. And it is also quite unreliable - almost always subject to revision.
It has been pointed out by numerous economists - dating back to Simon Kuznets (who effectively invented the measure) - that treating GDP growth as the sole measure of success is deeply flawed.
It doesn’t measure a lot of positive activity in the economy. “The welfare of a nation can scarcely be inferred from a measure of national income,” Kuznets said.
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The appeal of doom-spending
Don’t expect Gen Z to stop living life though, recession or not.
“The economy sucks so let’s go shopping!” That’s the message coming from young people in new United States research, which suggests there might be a backlash against all the economic and political gloom we’re dealing with.
About 27 per cent of Americans admit to “doom-spending” to cope with concerns about the economy and foreign affairs, reports Bloomberg News, citing research by Credit Karma, an American personal finance company. Not surprisingly the rates are even higher among Millennials and Gen Z - at 43 per cent and 35 per cent respectively.
“Doom-spending” is defined as spending money despite concerns about the economy and foreign affairs to cope with stress.
Locked out of the housing market, locked down through some of the best years of their youth and now facing increasing job insecurity as recession bites, it’s not hard to sympathise with the reckless financial attitude.
But stay in KiwiSaver kids... and avoid credit card debt! Hang in there. Keep investing in your skills and career, the economy will keep turning and opportunities will open up. That’s my advice.On that basis, critics say, we shouldn’t let it define how happy we feel. But...
Chart of the week
Ominous oil price
This chart is a reminder of how tough the war on inflation is to win. Commentators say oil prices have been on the rise due to expectations that interest rates will soon fall, bringing stronger global economic growth. Of course, higher oil prices drive cause inflation. And if inflation stays high then interest rates won’t fall... and around we go!