(US) – Investors are growing increasingly concerned about the possibility of a decline in US consumer spending, a crucial driver of the country’s economic growth.
According to a Bloomberg survey, over half of the 526 respondents believe that personal consumption, which has been vital for the US economy, will contract in early 2024.
This would mark the first quarterly decline since the onset of the pandemic. An additional 21% expect this reversal to happen in the final quarter of this year, citing rising borrowing costs that could impact household budgets.
These findings contrast with the optimism that has pervaded the US stock market due to decreasing inflation and low unemployment, fostering hopes for a “soft landing.”
Consumer spending decline could impact stock prices
However, if consumer spending contracts and the economy stops growing, it could result in further declines in stock prices, which have already retreated from their late-July highs.
While the US economy currently appears to be accelerating, with forecasted growth in the third quarter following a boost in household spending, some analysts view this as a potentially fleeting development.
Factors like a summer spending spree driven by events like blockbuster movies and concert tours in the Northern Hemisphere may not be sustainable.
The US job market’s continued strength has supported consumer spending despite significant price increases in recent years, leading some analysts to postpone or even abandon recession expectations.
Despite this, several challenges lie ahead, including concerns that the excess savings that helped consumers weather the recent spike in prices will run out in the current quarter.
Delinquency rates on credit cards and auto loans are rising as the Fed raised interest rates significantly.
Student loans are about to come due for millions of Americans who benefited from pandemic-related repayment freezes.
Most investors in the survey cited the declining availability and rising cost of credit, especially with mortgage rates near two-decade highs, as the most significant obstacles for consumers in the coming months.
Investors are closely monitoring various indicators to gauge consumer sentiment and behavior, from traditional metrics like retail sales and credit card delinquencies to non-traditional ones like airline bookings, pet adoptions, and the usage of buy now, pay later installment plans.
The uncertainty surrounding the US economy and markets in this post-pandemic environment has made it challenging to rely on the traditional economic playbook, as events appear to be unfolding at a slower pace.
As consumer spending plays a pivotal role in determining the economy’s trajectory, investors are eagerly seeking signs of how US consumers will behave in the months ahead.
