Is there a ‘richcession’ and could it help the economy?

A recession impacts the middle and lower classes more than the wealthy. But during a “richcession,” it’s the “well-heeled who take a bigger hit than usual,” according to The Wall Street Journal’s Justin Lahar, who coined the term. At the beginning of the year, experts warned of a richcession, claiming that industries such as the luxury goods sector could see some losses.

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Now, some have changed their tuning, stating that it’s no longer probable, as the rich are still spending. For example, Lamborghini could sell “10,000 cars this year for the first time,” according to Reuters. But even if a richcession could help slow inflation without blowing up into a full-blown recession, it alone isn’t enough to count a recession out. 

Economic ‘soft landing’ or ‘drag’?

The “bulk of high-profile job losses that began last year have been concentrated in higher-paying professions,” according to Christopher Rugabert of The Associated Press. This is evident in the widescale tech and media layoffs that occurred over the past year. The Federal Reserve has continued to increase interest rates, which creates a “scenario where business owners are having a hard time keeping up,” Amy Legate-Wolfe wrote for Barchart. “Businesses’ higher-earning workers tend to be the first out the door.”

Despite this, the economy as a whole has continued to grow, with hiring and consumer spending increasing. “The latest snapshot of the economy coincides with rising sentiment that it may achieve an elusive ‘soft landing,’ in which growth slows and inflation falls without igniting a full-blown recession,” Rugabert continued. As a result, a “full-blown recession might or might not arrive,” wrote Lahart in the Journal. “But the richcession could still place a drag on the overall economy in the meantime.” 

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Since those being laid off have highly sought-after skills, many “can probably find new jobs fairly quickly — but maybe not at the same level of pay,” causing them to spend less, Lahart continued. “So it looks as though the rich aren’t about to get richer, at least for now,” remarked Legate-Wolfe.

Services over goods

The wealth of the richest still can’t be overlooked, and “rich people have never been wealthier and are spending more than they were before the pandemic,” according to Jennifer Sor for Insider. The reduced spending on goods is likely due to the rich coveting experiences instead. The luxury services industry was a “particular hot spot,” Sor continued, adding that “sales in the luxury hospitality industry more than doubled” because of the “strong demand for travel.”

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A richcession also “felt a bit like the whining of privileged people who felt that reduced inequality was unjust and that they were somehow its victims,” remarked Martin Tillier in a piece for Nasdaq. Evidence suggests that the “concept of a richcession was simply not true, or if it were true in February, it was extremely short-lived.” New data suggests that there has been an increase in the demand for travel and a decrease in spending on basic necessities, meaning “order has been restored” and a chance of a true recession is not completely out of the question.

What we’re seeing in the high number of layoffs may not be a richcession but instead a rolling recession, during which “different sectors of the economy take their turns contracting,” Rugabert wrote. Whether a richcession or rolling recession takes place, some experts are “more hopeful that a recession can be avoided, even if the Fed keeps interest rates at a peak for months to come.” 

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