Strength of U.S. Consumer
What is the current outlook for U.S. Consumers?
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Today, we’re going to examine the U.S. consumer. If we look at the chart below, we can see that consumers are starting to really feel the heat from the inflationary pressures we discussed in our prior articles. The indicator depicts when above 100 a boost in consumer confidence towards the future economic situation. This leads to more spending in the economy over the course of the next 12 months. On the other hand, when below 100, consumers are pessimistic towards the future developments of the economy. Consumers tend to save in this environment and feel less confident to spend over the coming 12 months. Is this a bad sign for the economy? It seems that we may experience a slowdown in the near-term which seems to be reflective in the recent volatility we’re experiencing in the stock market. But, as we look forward, we believe COVID will have less impacts on supply chains and the economy as we move towards the spring/summer.
OECD (2022), Consumer confidence index (CCI) (indicator). doi: 10.1787/46434d78-en (Accessed on 19 January 2022)
The bigger question as consumer confidence is falling, are consumer delinquencies ticking higher? It’s quite the opposite right now. Consumer balance sheets have strengthened considerably since the pandemic bump we saw in 2020.
Let’s take it a step further and look at the number of consumers with new foreclosures and bankruptcies. You will notice the positive trend continues despite the high amounts of inflation we currently are experiencing.
What is one the main drivers of overall improvement? Well, if we look deeper student loan debt 90+ days delinquent has dropped sharply, thanks to the federal government’s role in delaying federal student loan repayments. The president recently extended this deadline back on December 22nd for an additional 90 days through May 1st, 2022. While this is helpful in the short-term there is still $1.6 trillion in student loan debt outstanding with the average amount owed being roughly $36,000.
Conclusion: While consumer confidence is waning and inflation is putting a dent in consumers’ pockets, consumers balance sheets remain strong. I am still in the camp that inflationary pressure should start to abate towards the end of 2022. The Fed will start to normalize rates this year with a few rate hikes that could cause a slight slowdown in activity, but I still believe the economy will remain strong and will continue to expand despite these near-term headwinds. Also, if risk assets decline significantly further, you can expect the Fed to reverse course and maintain simulative measures.
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Cheers,
Korey Bauer
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