American Spenders Are Fueling Growth. How Long Can It Last?

Look to your left and your right and then answer this question: What’s the mood of the people around you?

For the sake of everyone’s jobs, incomes, retirement funds, homes, and much else, we’d better hope the mood stays upbeat. Much more than usual, the consumer’s sunny disposition is propelling the U.S. economy’s growth. But the latest research suggests a mood swing may be underway.

In their shopping, consumers are blithely ignoring the daily articles about the latest signs of a looming recession. Unperturbed, they’re spending with gusto—more per capita than ever in history, even after adjusting for inflation. Their spending has long been the largest component of America’s economy; over the past several years, consumption has accounted for 67% to 69% of U.S. GDP. But lately, consumers have been outdoing themselves, contributing 85% of America’s GDP growth over the past five years. Fannie Mae’s economists recently concluded, “Consumer spending remains the most important force driving the continued expansion of the U.S. economy.” Shoppers are the heroes of this record-setting expansion, 10 years old and counting.

Those who remember back more than 10 years may shudder. Frenzied consumption is exactly what fueled the ebullient growth of 2003 to 2007, before it all collapsed into the worst recession of the past 70 years. But today’s consumers aren’t the debt-crazed shopping fiends of those days. Just the opposite: Financially, they’re model citizens. Before the last recession, household debt climbed to 99% of GDP; today, it’s only 76%. As the economy boomed in 2006 and 2007, the personal savings rate fell, bizarrely, to zero; today, it’s a prudent 8.1%. “The severity of the last recession has altered consumers’ behavior,” says Lynn Franco, who oversees the Conference Board’s consumer confidence survey. “They were scarred.”

With households nowhere near tapped out, unemployment at a 50-year low, and real wages rising, it seems consumers could comfortably keep up their heroic GDP-driving performance indefinitely. Yet history says they won’t. The great question for the U.S. and world economies is whether U.S. consumers’ mood will sour, and specifically what might spook them into pulling back.

Job weakness is the No. 1 candidate, frightening even people who are still working. “A couple of really bad employment numbers would probably lead to a decline in confidence and spending,” says Mickey Levy, an economist at Berenberg Capital Markets and an adviser to several Federal Reserve banks. An escalating trade war could also dent the consumer psyche. The latest surveys by the Conference Board and the University of Michigan—conducted before President Trump announced a potential trade deal with China—asked respondents open-ended questions about what worries them; the top answers were tariffs and trade wars. “The weakest point now is that tariffs will drive up consumer prices,” says Richard Curtin, chief economist for Michigan’s consumer sentiment surveys. “It could be a sobering experience for consumers going to the store and seeing prices of many things rising—toys, clothing, consumer electronics.”

You can’t help wondering if consumers are already starting to waver. Sales of recreational vehicles are worth watching because RVs are expensive nonnecessities, an easy purchase to postpone if buyers are worried. Sales fell slightly last year and are down sharply this year—their first full-year decline since 2007. Manhattan apartment prices offer a glimpse into the minds of high-income consumers, and those prices are weakening, the Douglas Elliman real estate firm reports; in addition, more buyers are using mortgages. You might think high-income home buyers would be the last people to pinch pennies, but they could also be among the first if they have a clearer view of economic trends.

A group with an even clearer view is CEOs, and they’re almost despondent. The Conference Board’s CEO confidence index, based on a September poll, has plunged to the lowest reading since early 2009, in the gloomiest days of the last recession. Only a year ago, the CEOs mostly thought economic conditions were better than they had been six months earlier and would keep getting better. Now they mostly think conditions are worse and will get worse still.

As for ordinary consumers—the mass of buyers whose daily decisions steer the economy—their view may be darkening at this moment. The Conference Board’s September reading shows consumer confidence at a still-extraordinarily high level but down sharply from August. A Fortune-SurveyMonkey poll of more than 10,000 households in September asked respondents if they expected a recession in the next 12 months. Two-thirds said yes.

But consumer confidence is an unreliable predictor of recessions. It always declines before downturns—that’s why it’s crucially important—but it sometimes drops just as deeply in the midst of booms, then bounces back. All of which suggests there must be more going on in consumers’ heads.

As for ordinary consumers—the mass of buyers whose daily decisions steer the economy—their view may be darkening at this moment.

Nobel prize–winning economist Robert Shiller thinks he has found the missing factor. It’s the power of story. “People are motivated by narratives,” he says. “It’s not distilled down just to confidence.” In the last boom, for example, “everyone heard concrete stories about someone making more money selling their house than you made working all last year,” he notes. His new book, Narrative Economics, offers many such examples of stories going viral, fueling booms and busts through history. “One narrative I’m particularly concerned about now is the A.I. narrative—the idea that technology will take over almost all jobs,” he says. That narrative, if amplified by social media and combined with real employment declines, could tip the consumer mood from positive to pessimistic—shutting down the growth engine.

All recessions become a self-reinforcing downward spiral, but the spiral can’t function as long as consumers stay hopeful. To sense where we’re headed, monitor the confidence data and also listen carefully to the tenor of the stories you’re hearing.

And for your own good, spread sunshine.

A version of this article appears in the November 2019 issue of Fortune with the headline “Anatomy of an American Spender.”