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Even with inflation’s gradual cooldown, nearly one-third (30%) of consumers are scaling back spending as they navigate sticky inflation and elevated borrowing costs, according to a survey conducted by Big Village Insights from June 4-11, 2024. What’s more, only 56% of respondents are actively saving for retirement and 20% report that an outstanding credit card balance is impacting their ability to meet their financial goals.
A number of recent U.S. economic reports also have pointed to a weaker consumer, prompting speculation on whether the Federal Reserve can indeed engineer a soft landing. The Conference Board consumer confidence survey, for instance, showed that the labor differential (that is, jobs hard to find minus jobs plentiful) advanced to a new cycle high at -18.1, potentially pointing to a faster pace of deterioration in the labor market. The headline consumer confidence index actually improved to 100.3 in July, but the increase was insufficient enough to move beyond the tight range observed over the past two years.
But most consumers remain optimistic about their financial situations, with 85% of respondents signaling they are confident in their ability to manage their finances, per Toronto-Dominion’s (TD) Consumer Spending Index, which polled more than 1,500 Americans who have a credit card to assess shifts in consumer spending habits, credit usage and financial priorities.
AllianceBernstein (AB) sees signs that the consumer is facing more financial stress than they have over the past few years, though “we don’t believe that they point to a deeper downturn in this vital cog of the economy.” Instead, the firm sees consumers shifting to a more conservative approach when it comes to spending.
To be sure, Bret Jensen, Investing Group Leader of The Biotech Forum, reckons “a consumer-led recession is quite likely in the quarters ahead.” He cited a sharply lower personal saving rate with depleted pandemic-related excess savings, as well as an upswing in the unemployment rate and credit card delinquency rates.
With consumer spending accounting for nearly 70% of overall economic activity, he added, it’s “difficult to see how we avoid at least a shallow recession over coming quarters, even if the Federal Reserve finally cuts rates as expected at its September [Federal Open Market Committee] meeting.” Seeking Alpha’s July Sentiment Survey, however, signaled that the world’s largest economy is most likely to avoid a recession over the next twelve months.
A number of corporate earnings reports offered a window into the state of the consumer. Payments network Visa’s (V) fiscal Q3 results featured a bit of a growth slowdown in total payment volume, cross-border volume and processed transactions. Conversely, Mastercard’s (MA) Q2 earnings and revenue topped Wall Street expectations, “supported by continued healthy consumer spending [and] robust cross-border volume growth of 17%, said CEO Michael Mieback.
McDonald’s (MCD), meanwhile, has been grappling with a slump in traffic across all geographic segments, as inflation has pushed fast food prices to a level that is increasingly unaffordable for many consumers. The company saw its same-store sales fall 1% in Q2, the first decline since the onset of the Covid-19 pandemic.
In July, the University of Michigan’s consumer sentiment gauge dipped to 66.4 in July from 68.2 in June, as inflation expectations on the five-year horizon remained “somewhat elevated” at 3.0%.
