Consumer spending, the most important driver of the US economy, is expected to shrink in early 2024 — the first quarterly decline since the start of the pandemic, according to a new survey.
More than half of 526 respondents, or 56%, believe that personal consumption in the US will turn negative in the new year, Bloomberg found in its latest Markets Live Plus survey.
Another 21% said the reversal will happen even sooner, in the final quarter of 2023, Bloomberg found, which blamed the pessimism on high borrowing costs affecting household budgets and COVID-era savings drying out.
Bloomberg Economics’ chief US economist, Anna Wong, questioned: “Is this strength in consumption sustainable?”
To Wong, “it is not sustainable, because it’s driven by these one-off factors,” such as a summer splurge on blockbuster movies and concert tours, namely Taylor Swift’s sought-after “Eras Tour,” which is on track to amass a record-breaking $1 billion in sales, making it the highest-grossing tour ever.
Bloomberg’s survey is at odds with the sentiment that the US economy will dodge a recession.
Federal Reserve officials have said that they’re no longer forecasting a recession, and consumers have continued to feel reprieve from the central bank’s aggressive tightening regime.
In July, core CPI — which excludes volatile food and energy prices — only rising 0.2% from a month prior, matching the 0.2% increase in June.
The Bureau of Labor Statistics will report August’s consumer price index on Wednesday.
Inflation has also cooled to 3.2% — down significantly from its four-decade peak in June 2022, when inflation hit 9.4%.
Low unemployment has also made for an optimistic outlook that the economy will avoid a recession, though August’s 3.8% unemployment rate surprised economists who had expected the US Labor Department would report 3.5% unemployment, in line with July’s number.
“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,” Alec Young, chief investment strategist at MAPsignals, told Bloomberg.
“If the market loses confidence in that scenario, then stocks are vulnerable,” he added of stocks, which have already slipped from late-July highs.
Other factors that could inhibit progress in the economy: credit card and auto loan delinquencies, which hit a 10-year high this month.
This year, credit card delinquencies have hit 3.8%, while 3.6% have defaulted on their car loans, according to credit agency Equifax.
Low- and middle-income earners have been especially hit hard by soaring prices on everything from rent, groceries and new and used cars despite the Fed’s attempts to tamp down stubbornly-high inflation.
Millions of Americans are also now facing another kind of debt, after student loan payments started accruing interest again on Sept. 1, with payments due starting in October.
Federal student loan borrowers haven’t had to make payments in over three years thanks to pandemic-era federal assistance.
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