Main Topic: U.S. consumer confidence increases to a two-year high in July, but mixed signals persist.
Key Points:
1. Consumers remain fearful of a recession due to interest rate hikes.
2. Consumers plan to buy motor vehicles and houses, but fewer anticipate purchasing major household appliances.
3. Consumers intend to spend less on discretionary services but expect to increase spending on healthcare and streaming services.
### Summary
📉 Americans could run out of savings as early as this quarter, according to a Fed study. Excess savings are likely to be depleted during the third quarter of 2023.
### Facts
- 💸 As of June, US households held less than $190 billion of aggregate excess savings.
- 💰 Excess savings refer to the difference between actual savings and the pre-recession trend.
- 🔎 San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira estimate that these excess savings will be exhausted by the end of the third quarter of 2023.
- 💳 Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- 📉 The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
### Summary
The chief global economist at Piper Sandler has warned that the U.S. economy is set to worsen before improving, and Americans should save money and maintain their savings. Rising everyday prices, declining manufacturing activity, excessive government spending, and a tight labor market are all contributing factors.
### Facts
- Americans are spending $709 more on everyday goods in July compared to two years ago.
- One-third of U.S. households spent more than 30% of their income on housing in 2021.
- Excessive government spending is blamed for high prices.
- The declining birth rate and closure of maternity wards indicate that Americans are postponing having children.
- Inflation is a major challenge for the economy, and a recession will put pressure on all wealth groups.
- The economist argues that the fiscal stimulus from the Inflation Reduction Act has had a "counterproductive" impact on controlling inflation.
- To see an economic turnaround by 2025, the private sector needs to drive capital spending, while curbing government spending and reforming entitlements is necessary.
- The economist hopes for sustained low inflation and increased labor force participation but emphasizes the need for tough decisions in Washington.
- The economist believes that the U.S. needs to get its fiscal house in order to become a leader in the global economy.
Consumers have spent most of their excess savings from the Covid-19 pandemic, and this trend is expected to continue until the third quarter of 2023, potentially leading to a slowdown in economic growth and job market expansion.
Inflation is causing a decline in affordability for average working individuals, with prices on everyday necessities such as groceries, gasoline, and housing rising significantly in the past two years due to government spending and the Fed's money-printing.
Latest results and forecasts from retailers indicate that U.S. consumer spending is under stress due to middle-income Americans spending less and struggling with debt, posing challenges for the retail sector during the back-to-school and holiday seasons.
US consumer spending is showing resilience and robust growth, although signs of a slowdown are emerging, potentially related to the public's perception of a deteriorating financial situation due to high inflation and rising interest rates, despite the fact that households still have higher deposits compared to pre-pandemic levels.
Despite concerns over the financial health of the US consumer, projections for a stock market decline may be unfounded as consumers have the capacity to spend, with low debt levels, significant assets, untapped home equity, low mortgage rates, and solid retail spending.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which may lead to softer consumer spending and sideways movement in the stock market for the rest of the year, according to experts. Additionally, the resumption of student loan payments in October and the American consumer's credit card debt could further dampen consumer spending. Meanwhile, Germany's economy is facing a recession, with falling output and sticky inflation contributing to its contraction this year, making it the only advanced economy to shrink.
US imports of consumer goods, particularly home electronics, experienced a significant decline in the second quarter of 2023, following the end of the Covid-induced work-from-home electronics boom, while US manufacturing also slowed, indicating challenges in stimulating demand; however, claims that this decline in imports is solely due to re-shoring are false, as imports from US allies such as Mexico, Vietnam, and India have increased in tandem with China's declining exports to the US.
The United States' pandemic-induced stimulus measures have led to the printing of nearly 80% of all dollars in circulation since 2020, resulting in severe detrimental effects on the economy, including surging prices and inflation.
Consumer confidence fell in August 2023, erasing back-to-back increases in June and July, as consumers expressed concerns about rising prices, employment conditions, and future business prospects amidst a cooling labor market and high interest rates.
Consumer confidence in the United States has plummeted as high prices and interest rates deter spending, with the Conference Board's consumer confidence index falling to 106.1 in August from a revised 114 in July.
Consumer spending in the US jumped 0.8% in July, the strongest monthly gain since January, driven by purchases of restaurants, live shows, toys, games, and recreational equipment; however, underlying data suggests that this spending may be on borrowed time.
Consumer spending is driving third-quarter GDP growth, but unsustainable spending habits, tightening lending standards, and the depletion of pandemic savings may lead to a decline in consumer spending in early 2024.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
US household savings accumulated during the pandemic are expected to be depleted by the end of September 2023, as the excess savings have steadily declined and are projected to continue falling at a rate of $100 billion per month, potentially impacting consumer spending and the wider economy.
Goldman Sachs chief economist Jan Hatzius predicts that US consumers will remain resilient in 2024, with a projected growth of around 3% in real disposable household income, indicating that a decline in real consumer spending is unlikely despite signs of stress.
The US economy is predicted to enter a recession by spring, leading to a 25% or more crash in the S&P 500, according to economist David Rosenberg, who warns that American consumers are nearing their spending limits and rising home prices reflect a weak housing market.
Mortgage rates remain elevated, slowing housing market activity, and while home prices are not likely to fall significantly, rates are projected to decrease in 2023 and 2024.
Consumer spending has remained resilient, preventing the US economy from entering a recession, and this trend will likely continue due to low household debt-to-income levels.
There are indications that a severe economic contraction may be approaching in the US, with a significant decline in home sales and rising interest rates, similar to the 2008 financial crisis, according to Bloomberg analyst Mike McGlone.
Over half of respondents in a Bloomberg survey believe that US personal consumption will shrink in early 2024 due to high interest rates and a reduction in pandemic-era savings, potentially impacting the strong consumer spending propping up the US economy.
U.S. consumers have accumulated $43 billion in additional credit card debt during Q2 2022, three times the average amount since the Great Recession, and credit card interest rates have soared to over 20%, raising concerns about the impact of inflation and rising interest rates on consumers' ability to pay off their balances. However, some economists argue that higher wages are helping consumers keep pace with their debt, and the overall rate of charge-offs remains low. Nonetheless, the combination of spent-down pandemic savings and the resumption of federal student loan payments could pose challenges for lower-income borrowers and hinder consumer spending.
US household income fell by the most in over a decade in 2022, showing the impact of rising costs and the expiration of pandemic relief programs, with the median income dropping 2.3% and marking the third consecutive annual decline, contributing to concerns about the financial well-being of American families.
Consumer spending in the US has supported the economy despite concerns of a recession, but rising interest rates, the resumption of student loan payments, and dwindling savings are predicted to put pressure on consumers and potentially lead to a shrinking of personal consumption.
Consumer spending in the US is showing signs of cooling, with retail sales expected to slow down in August, indicating that the resilience of the consumer may be waning due to increased borrowing, depleted savings, and the impact of inflation.
Consumer sentiment in the US fell for the second month in a row in September, reflecting concerns about the economy, even though Americans believe that inflation will continue to slow.
U.S. consumers have significantly reduced their spending over the past six months and plan to continue doing so during the upcoming holiday season, with the majority cutting back on non-essential items and essential items.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
The UK economy is expected to slow in 2023 and 2024 due to high interest rates, continued uncertainty, and low productivity, with GDP growth predicted to drop to 0.4% this year and 0.3% in 2024, according to economists at KPMG and the OECD.
The latest Federal Reserve study reveals that Americans outside the wealthiest 20% have depleted their savings during the pandemic, with cash on hand now lower than pre-pandemic levels, potentially leading to a decline in consumer spending and a potential economic downturn.
Americans are feeling pessimistic about the economy despite the decline in inflation, with rising prices and reduced household income affecting their perception, potentially influencing the outcome of the 2024 presidential election.
Consumer confidence in the US fell for the second consecutive month in September 2023, with the Expectations Index dropping below the recession threshold, reflecting concerns about rising prices, the political situation, and higher interest rates. Assessments of the present situation were relatively unchanged, while expectations for business conditions, job availability, and incomes declined. Concerns about the current and future financial situation of families also increased.
Inflation is expected to rebound in 2024 due to a mismatch between supply and demand created by the shift from services to goods during the pandemic, as well as a chronic shortage of workers, according to BlackRock strategists. This could lead to higher interest rates and a higher risk of recession.
U.S. consumer confidence dropped to a four-month low in September, reflecting worries about higher prices, fears of a recession, and concerns about the political environment, according to the Conference Board; however, consumers' inflation expectations remained stable and their spending intentions for big-ticket items remained strong.
The current state of the consumer is concerning as wages are not keeping up with inflation, excess savings from the pandemic have been depleted, and increasing levels of credit card debt are making it difficult to maintain spending levels, leading to potential economic headwinds.
Global wealth experienced a significant decline in 2022, with a 2.7% drop in households' financial assets worldwide, primarily driven by falling asset prices; however, there is optimism for a rebound in 2023 and subsequent years, with projected growth of 6%.
Consumer spending in the US grew at a weaker pace than previously estimated in the second quarter, indicating that Americans have been cutting back on their spending more than expected.
Consumer spending remains resilient despite inflation and rising prices, contributing to economic growth, while the risk of a recession in the US has decreased but not disappeared completely.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
The decline in net household financial savings is largely due to the increase in their liabilities, with household financial liabilities rising from 3.8% to 5.8% of GDP in 2022-23, leading to concerns of growing household distress and potential implications for the broader economy.
Consumer spending in Minnesota is slowing down as the economy stabilizes after the COVID-19 pandemic, with a shift from goods to services, and rising prices for essential items like housing and gas impacting consumer behavior.
Chinese consumers are showing cautious spending behavior during the recent Golden Week holiday, indicating that they are not fully ready to resume pre-pandemic spending levels, despite the relaxation of COVID-19 controls; weak consumption data in other areas such as box office revenue and concerns in the housing sector and labor market contribute to the lack of confidence.
