5 signs that the resilient American consumer may be starting to decline

5 signs that the resilient American consumer may be starting to decline

Spencer Platt/Getty Images

  • There are a few signs that the strong US consumer slowdown is finally slowing down.
  • Thierry Weissman, a strategist at Macquarie University, expects the US economy to slide into a consumer-led slowdown.
  • He said the contraction could happen sometime between now and the end of the first quarter of 2024.

Finally, American consumers are showing signs of slowing down as they spend their savings, and there are a few warning signs that the economy may soon slide into a spending recession.

Thierry Weissman, a strategist at Macquarie Global, expects the US economy to slide into a consumer-led slowdown sometime between now and the end of the first quarter of 2024. He said a significant decline in consumer spending could force GDP growth to stall. From within, the overall economy has been pushed into borderline recession territory.

Weissman’s pessimistic outlook contradicts what other commentators have said, as consumers continued their spending spree through the third straight quarter this year. Retail sales jumped 0.7% during September, more than double what economists expected.

But Weissman said inflexible spending is itself the problem: Spending has been so strong, it’s bound to go the other way as savings dry up and Americans’ financial situations change.

“There were reasons why the third quarter was so strong. Going through all the revenge trips… and the concert tours,” Wiseman said. “The problem, of course, is that it’s usually followed by a hangover.”

“Like all forms of alcohol, this will occur shortly after excessive alcohol consumption,” he added in a note this week.

The economy is now releasing a host of warning signs indicating that the American consumer is starting to lose steam. Here are five signs of weakness that indicate a spending slump is on the way.

1. Credit card default rates are rising

The number of recent delinquent credit card users is on the rise.
Federal Reserve Bank of New York/Equifax

The percentage of credit card holders who were recently late on a payment rose to 2% in the latest quarter, about double the rate recorded in the first quarter of 2021. At the same time, the rate of Americans who were seriously delinquent on their credit card balances rose – by 90 days on… Lower — to nearly 6% last quarter, according to the New York Federal Reserve’s latest Household Debt and Credit Report.

Credit card delinquencies also saw a particularly high jump for those who already have auto and student loan debt, the report added. This is a sign of increasing financial pressures, which is likely to prompt people to pull back on spending, Weisman said.

2. Americans are saving less

The personal savings rate fell to 3.4% in September.
Federal Reserve/Bureau of Economic Analysis

The personal savings rate fell further last month. Americans saved an average of 3.4% of their disposable personal income in September, down from 4% in August, according to the Bureau of Economic Analysis. This is much lower than the saving rate before the pandemic, when Americans were saving about 7% of their personal disposable income.

“This is actually very low by historical standards,” Weisman said of the current savings rate. “So there has to be an adjustment at some point.”

Consumers also pulled much of their savings from the pandemic. Excess savings will likely be exhausted at the end of the fourth quarter, according to a study by the Federal Reserve Bank of San Francisco.

3. Consumer confidence has declined for three months in a row

Consumer confidence fell further in October to a reading of 102.6
Conference Board

Consumer confidence fell to 102.6 in October, down from a reading of 104.3 the previous month, according to the Conference Board. This represents the third month in a row in which consumer attitudes have deteriorated, based on factors such as inflation, stock prices and interest rates.

Meanwhile, the Conference Board’s Expectations Index, which reflects consumers’ short-term economic expectations, fell to 75.6 in October. It remains just below the key threshold of 80, which traditionally signals the next recession over the next 12 months.

“Consumer fears of an impending recession remain high, consistent with the short and shallow economic contraction we expect in the first half of 2024,” the Conference Board said in a statement.

4. Consumers are not planning to spend this holiday season

Americans are less likely to spend this holiday season than they were last year.
McKinsey & Company

Americans appear less inclined to overspend, even as they head into the holiday season. A McKinsey survey of 1,000 US consumers found that only 35% say they plan to spend big this year, less than the 39% of people who said they were willing to spend lavishly before the holidays in 2022.

A separate survey by Morgan Stanley found that 69% of people wait for retailers to offer discounts before they start shopping. On average, consumers are looking for a discount of about 30%, strategists said.

5. Retailers don’t hire as much before the holidays

Holiday employment fell to its lowest level in five years.
Apollo/Bureau of Labor Statistics

Holiday employment among retailers fell to 135,000, the lowest level in about five years, according to data from the Bureau of Labor Statistics.

“Holiday hiring generally picks up in October, and adding new jobs created in holiday retail sectors identified by the BLS in the latest hiring report shows that retailers are anticipating a holiday season,” Torsten Slok, chief economist at Apollo, said in a report. “Weaker.” Note on Tuesday.

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