In an interview with CNBC this week, Chris Watling, the chief executive of the financial advisory firm Longview Economics warned viewers that with household spending expected to continue to cool, the American consumer will be facing challenging times.
He pointed to the latest economic indicators which show that household savings are coming under increasing pressure as consumers have begun to rapidly run out of excess cash, while interest rates remain high, keeping borrowing costs elevated.
He said, “I think the US consumer is walking towards a cliff, basically. Of course, retail sales have been quite strong for the last few months, and everyone gets quite excited about that, but, actually, if you look at what’s going on, the household savings ratio has been run down, and, in fact, real income growth has been negative for three months.”
He noted that at the margins, both consumers and the labor markets are coming under considerable pressure, saying, “We had a good payrolls month, but if you look at a lot of the indicators of where the labor market is likely to go, a lot of them are fraying at the edges.”
He noted that all it will take is a sudden downturn in the labor market and the economy could quickly be sent into a recession. “We’re going to get to the point in the next few months. I think the US is in for a tough time.”
The data supports his contention. The University of Michigan released a study recently which showed that US consumer sentiment declined in October, marking the third consecutive month of declines, as households reported expecting inflation to increase over the next year.
In another report, Moody’s Investors Service noted that American consumer sentiment is being weighed down by persistent inflation and a deteriorating outlook on the American economy. Moody’s noted that after adjusting for inflation, the vast majority of American citizens have less savings now than they did before the pandemic, and that roughly two-thirds of the American economy is attributable to individual spending.
