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A hard landing narrative intact amid consumer downturn

Consumer spending is slowing, and it’s a warning shot for the U.S. economy as it nears a soft landing or a hard landing.

Americans are showing signs of stress over rising costs of living and a slowing job market. After a spending spree that has propped up the economy for most of the past two years, retail sales were surprisingly weak in April, remaining virtually flat compared with the 0.4% growth economists expected for the month. At the same time, March retail sales were revised down, with spending increasing by 0.6% instead of the 0.7% initially reported.

“The U.S. consumer is losing some of its luster. Retail sales numbers were flat with a capital ‘S,'” economist David Rosenberg said in a note this week. “Downward revisions to sales figures are an important wake-up call for macro perma-bulls, as they suggest the economy has been much weaker than it was previously.”

Rosenberg has been calling for a recession for months, predicting the economy will slow later this year. A hard landing has been postponed in part because of strong consumer spending in 2023, he previously wrote.

Americans are showing other signs that they are struggling to keep pace with inflation. A survey by financial services company Primerica found that 67% of middle-class respondents said their income was below the cost of living in the first quarter. Of those people, 74% said they were forgoing discretionary purchases, like dining out.

Americans are also saving less, even though they likely exhausted their excess savings due to the pandemic by March of this year. The personal savings rate fell to 3.2% in March, according to government data, from 5.2% a year ago.

Meanwhile, bills are piling up for American households. Total household debt hit a record high of $17.6 trillion in the first quarter, according to the latest Household Debt and Credit report from the New York Fed. Nearly 9% of credit card loans and 8% of auto loans became delinquent in the first quarter, according to Fed data.

The percentage of credit card loans that were at least 90 days past due, classified as serious delinquencies, reached 10.6% in the first quarter. This is the highest 90-day delinquency rate recorded since 2012, when the job market was still reeling from the 2008 financial crisis.

Danielle DiMartino Booth, a renowned forecaster who has argued that the United States is already in recession, says consumer spending has been hit in part because of a weakening job market. Job growth has slowed in recent months, with the United States adding 175,000 jobs in April, a weaker figure than expected. At the same time, consumer confidence declined for the third straight month, with only 12% of Americans expecting more jobs to be available in the future, according to the latest Conference Board survey.

“Americans were so confident that they were spending heavily on their credit cards, hoping that income gains would continue and allow them to spend beyond their means,” Booth said in an interview with the Schwab Network this week. last. “The household finally says: oh wait a minute, these income gains that I had planned, these income gains that allowed me to buy this plane ticket when maybe I should have driven with the family during spring break, I should” I didn’t spend that money.

The United States has not entered a recession, but fears of a slowdown have increased as interest rates appear poised to stay high for longer. The New York Fed estimates there is a 50% chance the economy will enter recession by April 2025.


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