By Haddon Libby
With the stock market down, home prices weakening, government spending being slashed and imports at all-time highs, it is no surprise that many economists expect a mild recession in 2025. No one believes that it will be like The Great Recession (2007 to 2011), but more of a garden variety slowdown like the one we had in 2018.
A consensus is forming that we might be entering an economic condition known as “Stagflation Lite”. To understand what this means, let’s imagine the economy as the wildest block party ever. Martin Garrix keeps the dance floor packed (that’s economic growth—businesses thriving, jobs flowing, cash flying). The snack shack has nachos, lemonade, and those killer brownies (those are goods and services), with prices tied to inflation. When the party’s lit like this, everyone’s grabbing snacks, so the shack might bump prices up a smidge. That’s inflation: more grooving, more spending, higher credit card balances. It’s like Garrix is dropping the best set ever with everyone living in the moment with no concern for tomorrow.
Now, imagine the opposite. The music cuts out, the crowd thins, and the vibe tanks. People stop showing up (growth stalls), jobs dry up, and the party’s a bust. That’s a recession. Normally, the snack shack would slash prices or increase promotions since fewer people are showing up and they want more business. This causes prices to drop, deflation to creep in, and the economy to mope around like a teenager without their iPhone.
Enter “Stagflation Lite,” crashing the scene with Uncle Sam as the buzzkill. Usually, Uncle Sam is the big spender—tossing cash around to keep the tunes pumping and the snacks flowing. But this time, he’s pinching pennies and cutting back on the party budget. The dance floor’s half-empty (stagnation—growth slows, jobs limp along), yet somehow the brownies are pricier (inflation). Where Uncle Sam once bought snacks for everyone as partiers had grown used to, Uncle Sam is yelling, “Buy your own!” while grumping around and picking fights. It’s like he just figured out how much he spent on parties and wants some of his money back.
The “Lite” part keeps Stagflation chill. This isn’t like the 1973-1975 or 1979-1981 stags that entered the house. Back then, unemployment spiked, prices soared, and the economy was a five-alarm fire. That was stagflation with a capital “S.” Stagflation Lite is more like a party hiccup – 80’s night, or a Tribute to Hair Metal Band. Growth’s sluggish, not dead; jobs aren’t booming, but they’re not vanishing; and prices rise just enough to make you sigh. It’s less than fun but not end-times.
With Uncle Sam spending less, his Benjamins are not flowing to keep the party swinging. With everyone having to pay for their own snacks, fewer are bought.
Meanwhile, prices climb because of things like shortages and/or cost spikes. Even a generous Uncle Sam is feeling pinched as he has way overspent his bank account. If he didn’t own the bank, he’d be screwed.
Stagflation Lite now has your newly grumpy Uncle agreeing to keep the party going but replacing Garrix with DJ Elon. Arrhythmic Elon keeps the party going with an odd mix of Andy Williams, Hank Williams, Slipknot, and William Shatner. It’s not pretty. As the crowd thins, DJ Elon shares a strangely Germanic salute to those departing. Inexplicably the price of lemonade is $2 higher than at the Garrix show. While you are having a better time than attending a funeral, it is hardly what you were expecting when partying.
That’s Stagflation Lite—Uncle Sam’s newfound frugality throws a wrench in the fun, leaving you with a less than fulfilling night out with a lighter wallet.
Haddon Libby is the Founder and Chief Investment Officer of Winslow Drake Investment Management, a Fiduciary RIA. For more information on our services, please visit www.WinslowDrake.com.
