MacroResearchBoard

U.S. Consumers Are Not Yet Finished – May 20, 2024

A just published report updated our forecast for the U.S. consumer sector, by examining the drivers of spending. Economic bears frequently highlight that the increased cost of borrowing and apparent depletion of the household sector’s pandemic-period excess savings will meaningfully slow consumption. We strongly disagree.

U.S. households have saved more than 8% of their income flow over the past four years, which is a greater rate than in the previous three expansions and constitutes a robust safety net for the future. Moreover, consumption fared well in pre-pandemic expansions without the help of any excess savings.

Importantly, the labor market remains solid, real wage growth is positive, and household balance sheets are healthy, with relatively low leverage and strong gains in wealth over the past four years. Moreover, having deleveraged last decade, household debt servicing burdens are still historically low despite the rise in borrowing rates.

The net result is that there are low odds of U.S. households cutting back on consumption in order to boost their savings. The outlook for U.S. consumption remain solid for the foreseeable future.