(Bloomberg) — Bloomberg’s latest Markets Live Pulse survey found that U.S. consumers are holding off on the recession longer than expected.
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More than half of the 526 respondents said private consumption — the most important driver of economic growth — will slow in early 2024, the first quarter since the pandemic began. Another 21 percent said a reversal would happen soon as higher borrowing costs eat into household budgets in the final quarter of this year, as Covid-era savings erode.
The finding contrasts with optimism in US equity markets for most of the summer, as rising inflation and low unemployment bolstered hopes of a so-called soft landing. If the economy stops growing — a highly likely scenario if consumer spending contracts — it could mean further declines for stocks, which have fallen from late-July highs.
“The possibility of a soft landing, falling inflation, an end to Fed tightening, higher interest rates, a stable dollar, stable oil prices – all of these things helped to lift the market,” said Alec Young, chief investment strategist at MAPsignals. . “If the market loses confidence in that scenario, stocks are at risk.”
‘It’s not sustainable.’
Currently, the US economy seems to be growing faster than stagnant. Growth is forecast to accelerate in the third quarter on the back of a recent pick-up in household spending, which jumped to the most in six months in July.
For some analysts, it seems a bit like a last hurray.
“The big question is, is this strength in consumption sustainable?” Anna Wong, chief U.S. economist at Bloomberg Economics, said she expects the recession to begin by the end of the year. “It’s not sustainable, because it’s driven by these one-time factors” — especially a summer season marked by blockbuster movies and concert tours.
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Sustained strength in the U.S. labor market has boosted household spending, with the highest rate of inflation in decades. It has led some analysts to push back or cancel their expectations for a recession altogether.
Economists at Goldman Sachs Group Inc. expect the consumer to outperform again in 2024 — and the economy to continue growing — with steady job growth and wage increases that outpace inflation.
But a lot of headwinds are looming.
According to researchers at the Federal Reserve Bank of San Francisco, the excess savings that helped consumers weather price hikes will run out in the current quarter — three-quarters of MLIV Pulse respondents agreed.
Thomas Simmons, US economist at Jefferies, said: “It is increasingly the case that the lower end of income and wealth levels are struggling with the inflation that has built up over the past two years.”
In total, consumers were able to bear the brunt of the higher prices, he said. But there will come a time when this will not happen.
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Delinquency rates on credit cards and car loans are rising as households feel financial strain after the Fed raised interest rates above 5 percent.
And another type of debt — student loans — is about to resurface for millions of Americans whose payoffs have been cut short by the pandemic.
A majority of investors in the MLIV Pulse survey pointed to the shrinking and rising supply of credit — with mortgage rates at near two-decade highs — as the biggest hurdle for consumers in the coming months.
Some three-quarters of respondents say auto or retail stocks are the most vulnerable to sharp declines in savings and consumer credit – a risk not fully bought by the markets. While General Motors Corp. and Ford Motor Co. missed this year’s broad stock rally, Tesla Inc. The price has more than doubled.
‘It’s only a long time.’
With the fate of the economy hanging on what American consumers do next, investors are looking all over the place for answers.
When asked what makes a good lead indicator, MLIV Pulse respondents pointed to everything from standard metrics — like retail sales or credit card delinquencies — to airline bookings, pet adoptions and “buy now pay later” installment plans.
This is because in the turmoil of the last few years, conventional guidelines are often unreliable.
“The traditional playbook of the economy and markets is being challenged in this post-pandemic environment,” said Keith Lerner, chief investment officer at Truist Wealth. “Things are taking too long to play out.”
The MLIV Pulse survey of Bloomberg News readers, both terminal and online, is conducted weekly by Bloomberg’s Markets Live team, which also runs the MLIV blog. This week, the MLIV Pulse survey asks whether investors have fully regained the confidence in UK property that they lost during the short-lived leasehold prime. Click here to share your view.
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