The Never-Say-Die US Consumer
The housing market, in most of the country, is getting weaker. Activity remains slow, prices are negative across the Sunbelt, and inventory of both new and existing homes are moving to the highest levels since the GFC. Employment is getting weaker. Continuing unemployment claims are making new highs on a weekly basis and even initial jobless claims are finally inching up. Measures of credit delinquencies in credit cards and auto loans are also making new post GFC highs. Consumer confidence surveys tell us that the consumer is beyond pessimistic.
Yet, the US consumer, broadly measured, shows absolutely no signs of exhaustion. While this morning’s headline retail sales report showed some weakness, if you strip out gasoline where prices are down, demand looks just fine. American Express, Visa and Mastercard unanimously say the same thing: no slowdown. Traffic and sales at casual dining restaurants show no signs of drop-off. Johnson Redbook same store sales are slowing a bit but remain strong at nearly 5% y/y growth. The question is how? One (and by one I mean me) would expect that, by now, we would have seen the impacts of weaker housing and employment trends on spending. It simply hasn’t happened. So why not? We offer five reasons that all likely contribute to the ever resilient US consumer:
Transfer payments – Personal Income growth has been strong this year but the biggest contributor to that has been payments from government to individuals. The BEA (Bureau of Economic Analysis) recently reported, “The increase in personal income in April reflected increases in government social benefits to persons, led by an increase in social security payments associated with the Social Security Fairness act”. In other words, a law was repealed and there were significant restitution payments made. According to the BEA that temporary increase in social security spending drove incomes even more than wage growth.
Real wage growth remains strong. Despite the cracks in employment, wages are still running at over 4% and over 2% adjusted for inflation. While white collar and full-time jobs are suffering, it remains the case that nearly 40% of respondents to the monthly NFIB surveys can’t fill open roles. There is a skills gap and it continues to widen.
The top 10% income cohort now accounts for 50% of all US consumption. This group, largely baby boomers, have never been more flush. The irresponsibly excess federal spending since the pandemic has been rocket fuel for asset prices. It is estimated by Cerulli Associates that more than $2 Trillion annually is flowing from Boomers to Millennials, who have a much higher propensity to spend versus save.
Demand for consumer credit is rising. Specifically, revolving credit (credit cards) spiked in April which is the most recent month for which we currently have data.
Spending lags the weakness we are now seeing in housing and employment.
Our expectation is that consumer spending will soften. Specifically, we have what has become a variant view that tariffs are a deeply regressive tax that will hit lower income consumers and many small businesses hard. Additionally, we expect that the resumption of student loan payments will also have an impact. In time, the reality of a weaker housing market and a softer job market will also manifest in overall consumer demand. That said, we remain sanguine that excess fiscal spending, secular labor tightness, and the generational wealth transfer will keep spending stronger than traditional analysis would suggest.
WealthVest makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made in this material, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of Tim as of the date indicated. They do not necessarily reflect the views and opinions of WealthVest and are subject to change at any time without notice. WealthVest does not have any responsibility to update this material to account for such changes. There can be no assurance that any trends discussed during this material will continue.
Statements made in this material are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed in this material, including consulting their tax, legal, accounting or other advisors about such information. WealthVest does not act for you and is not responsible for providing you with the protections afforded to its clients. This material does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by WealthVest.
Certain statements made in this material may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.
The S&P 500® is a trademark of Standard & Poor’s Financial Services, LLC and its affiliates and for certain fixed index annuity contracts is licensed for use by the insurance company producer, and the related products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC or their affiliates, none of which make any representation regarding the advisability of purchasing such a product. WealthVest is not affiliated with, nor does it have a direct business relationship with Standard & Poors Financial Services, LLC
Tim Pierotti is WealthVest’s Chief Investment Officer.
Tim has over 25 years of experience in various aspects of the equities business. Prior to joining WealthVest, Mr. Pierotti spent seven years in Equity Research management roles at Deutsche Bank and most recently at BMO where he was a Managing Director and Head of US Product Management. Tim has 11 years of investment experience most notably as Head of Consumer Research and Portfolio Manager at The Galleon Group, a former NY based $8Bln Long/Short hedge fund. Tim is a graduate of Boston College and lives in Summit NJ.
WealthVest makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made in this material, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of Tim as of the date indicated. They do not necessarily reflect the views and opinions of WealthVest and are subject to change at any time without notice. WealthVest does not have any responsibility to update this material to account for such changes. There can be no assurance that any trends discussed during this material will continue.
Statements made in this material are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed in this material, including consulting their tax, legal, accounting or other advisors about such information. WealthVest does not act for you and is not responsible for providing you with the protections afforded to its clients. This material does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by WealthVest.
Certain statements made in this material may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.
The S&P 500® is a trademark of Standard & Poor’s Financial Services, LLC and its affiliates and for certain fixed index annuity contracts is licensed for use by the insurance company producer, and the related products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC or their affiliates, none of which make any representation regarding the advisability of purchasing such a product. WealthVest is not affiliated with, nor does it have a direct business relationship with Standard & Poors Financial Services, LLC.
