Image source: Tang Mingdong
A survey conducted by Big Village Insights from June 4 to June 11, 2024 showed that even as inflation gradually cools down, nearly one-third (30%) of consumers are still cutting back on spending to combat sticky inflation and Borrowing costs rise. 20% said outstanding credit card balances are impacting their ability to achieve financial goals.
Some recent U.S. economic reports have also pointed to consumer weakness, sparking speculation about whether the Fed can indeed achieve a soft landing. For example, the Conference Board Consumer Confidence Survey showed that the labor gap (i.e., job difficulty minus job abundance) rose to a new cycle high of -18.1, which may indicate that the labor market is deteriorating at an accelerated pace. The overall consumer confidence index actually improved to 100.3 in July, but the increase was not enough to break out of the tight range observed over the past two years.
But most consumers remain optimistic about their finances, with 85 per cent of respondents saying they are confident in their ability to manage their finances, according to the TD Consumer Spending Index, which surveyed more than 1,500 owners Credit Card Americans were surveyed.
Alliance Bernstein (AB) sees signs that consumers are facing greater financial stress than in past years, although “we do not believe this points to a deeper downturn in this important cog of the economy.” On the contrary, The company believes consumers are shifting to a more conservative approach when it comes to spending.
To be sure, Bret Jensen, head of the Biotech Forum’s investment group, believes that “a consumer-led recession is likely to occur in the next few quarters.” He pointed to a sharp decline in personal savings rates, depletion of excess savings related to the epidemic, and job losses. rates and credit card delinquency rates are rising.
He added that with consumer spending accounting for nearly 70% of overall economic activity, “even if the Fed ultimately cuts interest rates in September as expected, it will be difficult for us to avoid at least a small recession in the coming quarters.” [Federal Open Market Committee] Meeting. However, Seeking Alpha’s July sentiment survey suggests the world’s largest economy is most likely to avoid recession in the next 12 months.
Earnings reports from many companies provide a window into consumer conditions. Payment network Visa (V)’s third-quarter financial report showed a slight slowdown in growth in total payment value, cross-border transaction volume and processed transactions. Conversely, Mastercard (MA) beat Wall Street estimates for second-quarter earnings and revenue, “supported by continued healthy consumer spending.” [and] Chief Executive Michael Mieback said cross-border transaction volume grew strongly by 17%.
Meanwhile, McDonald’s (MCD) has been struggling with declining foot traffic across all regions as inflation has pushed fast-food prices to levels that are increasingly unaffordable for many consumers. The company’s same-store sales fell 1% in the second quarter, its first decline since the Covid-19 pandemic began.
The University of Michigan’s consumer confidence index fell to 66.4 in July from 68.2 in June, as inflation expectations over five years remain “slightly higher” at 3.0%.
