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Markets
Economics


THE MIGHTY AMERICAN CONSUMER IS ABOUT TO HIT A WALL, INVESTORS SAY

Key engine of US growth is poised to sputter in early 2024, according to survey
respondents.

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MLIV Pulse: What's the Outlook for US Personal Spending?
MLIV Pulse: What's the Outlook for US Personal Spending?
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MLIV Pulse: What's the Outlook for US Personal Spending?
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By Reade Pickert and Vildana Hajric
September 11, 2023 at 1:00 AM GMT+1
Updated on
September 11, 2023 at 1:15 PM GMT+1

Listen

4:50

After staving off recession for longer than many thought possible, the US
consumer is finally about to crack, according to Bloomberg’s latest Markets Live
Pulse survey.

More than half of 526 respondents said that personal consumption — the most
important driver of economic growth — will shrink in early 2024, which would be
the first quarterly decline since the onset of the pandemic. Another 21% said
the reversal will happen even sooner, in the last quarter of this year, as high
borrowing costs eat into household budgets while Covid-era savings run down.


AMERICAN CONSUMER IS APPROACHING A TIPPING POINT

We asked when US consumption will turn negative on quarterly basis

Source: MLIV Pulse survey Sept 4-8 with 526 respondents

The finding is at odds with the optimism that’s permeated US equity markets for
most of the summer, as cooling inflation and low unemployment bolstered hopes
for a so-called soft landing. Should the economy stop growing — a scenario
that’s quite likely if consumer spending contracts — it could mean more downside
for stocks, which have already slipped from late-July highs.



“The likelihood of a soft landing, falling inflation, an end to Fed tightening,
a peak in interest rates, a stable dollar, stable oil prices — all those things
helped drive the market up,” says Alec Young, chief investment strategist at
MAPsignals. “If the market loses confidence in that scenario, then stocks are
vulnerable.”


‘IT IS NOT SUSTAINABLE’

Right now, the US economy appears to be speeding up rather than stalling. Growth
is forecast to accelerate in the third quarter on the back of a recent pickup in
household spending, which jumped in July by the most in six months.

To some analysts, it looks a bit like a last hurrah.

“The big question is: Is this strength in consumption sustainable?” says Anna
Wong, Bloomberg Economics’ chief US economist, who expects a recession to start
by year-end. “It is not sustainable, because it’s driven by these one-off
factors” – notably a summer splurge on blockbuster movies and concert tours.

Read More: Barbenheimer, Swift, Beyonce = Mirage of US GDP BoomBloomberg
Terminal

The enduring strength of the US job market has propped up household spending in
the face of the biggest price increases in decades. It’s led some analysts to
push outBloomberg Terminal their expectations for a recession — or even scrap
them altogether.

Economists at Goldman Sachs Group Inc. expect the consumer to outperform yet
again in 2024 — and keep the economy growing — amid steady job growth and pay
hikes that beat inflation.


‘REALLY STRUGGLING’

But there are plenty of headwinds looming.



Researchers at the Federal Reserve Bank of San Francisco say the excess savings
that have helped consumers get through the price spike will run out in the
current quarter — a sentiment that three-quarters of the MLIV Pulse respondents
agreed with.

“There’s increasingly an issue where the lower end of the income and wealth
spectrum is really struggling with the accumulated inflation of the last couple
years,” while wealthier Americans are still cushioned by savings and asset
appreciation, said Thomas Simons, Jefferies’ US economist.





In the aggregate, consumers have been able to bend under the weight of higher
prices, he said. “But there will come a point where that’s no longer feasible.”

Read full results: Savings Dwindle, US Student Debts Come Due: MLIV Pulse
ResultsBloomberg Terminal

Delinquency rates on credit cards and auto loans are rising, as households feel
the financial squeeze after the Fed raised interest rates by more than 5
percentage points.



And another kind of debt — student loans — is about to come due again for
millions of Americans who benefited from the pandemic freeze on repayments.

A majority of investors in the MLIV Pulse survey pointed to the declining
availability and soaring cost of credit — mortgage rates are near two-decade
highs — as the biggest obstacle for consumers in the coming months.



Some three-quarters of respondents said auto or retail stocks are the most
vulnerable to declining excess savings and tighter consumer credit – a concern
that’s not entirely priced in by the markets. While General Motors Co. and Ford
Motor Co. have essentially missed out on this year’s wider stock rally, Tesla
Inc. more than doubled in value.


‘JUST TAKING LONGER’

Since the economy’s fate hinges on what US consumers will do next, investors are
looking in all kinds of places for the answer.



Asked what they consider a good leading indicator, MLIV Pulse respondents
pointed to everything from the most standard measures – like retail sales or
credit-card delinquencies — to airline bookings, pet adoptions, and the use of
“Buy Now Pay Later” installment plans.

Expand

Source: Bloomberg MLIV Pulse survey Sept 4-8 with 526 respondents

That’s perhaps because conventional guides have often proved to be unreliable
amid the turbulence of the past few years.

“The traditional playbook for the economy and markets is challenging in this
post-pandemic environment,” said Keith Lerner, co-chief investment officer at
Truist Wealth. “Things are just taking longer to play out.”

The MLIV Pulse survey of Bloomberg News readers on the terminal and online is
conducted weekly by Bloomberg’s Markets Live team, which also runs the MLIV
blog. This week, the MLIV Pulse survey asks whether investors have fully
regained the confidence in UK assets that they lost during the short-lived
premiership of Liz Truss. Click here to share your views.



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