A new Bloomberg survey found that over half of respondents said personal consumption of U.S. consumers would shrink at the start of 2024.
The survey polled 526 investors, of which 21% said high borrowing pricing will begin to take up more and more of household budgets.
The findings do not entirely reflect inflation beginning to stall, unemployment rates remaining low, or consumer spending remaining steady. However, if consumer spending does begin to tighten up, stocks will likely drop, which is a worrying scenario for consumers and investors alike.
“The likelihood of a soft landing, falling inflation, an end to [Federal Reserve] tightening, a peak in interest rates, a stable dollar, stable oil prices – all those things helped drive the market up,” said Alec Young, chief investment strategist at MAPsignals.
“If the market loses confidence in that scenario, then stocks are vulnerable.”
Despite growth being predicted to speed up in the third quarter after an uptick in household spending, which significantly surged in July, some analysts worry that it will be its last push before a fall.
“The big question is: Is this strength in consumption sustainable?” said Anna Wong, Bloomberg Economics’ chief US economist.
“It is not sustainable, because it’s driven by these one-off factors” like in the case of Taylor Swift or Beyonce tickets or going to see the super-hyped Barbie movie.
With the help of a firm job market, Goldman Sachs economists predict customer spending will perform well in 2024.
However, researchers at the Federal Reserve Bank of San Francisco instead suggest the surplus savings consumers had in reserve might have been used up after sustained price increases, which will be evident in the current quarter.
Three-quarters of those surveyed by Bloomberg agreed with the bank.
“There’s increasingly an issue where the lower end of the income and wealth spectrum is really struggling with the accumulated inflation of the last couple years,” said Thomas Simons, Jefferies’ U.S. economist.
Wealthier Americans have been able to weather the changes in the economy just fine, but lower-income households have also had to continue to adjust their spending due to higher prices, he said.
“But there will come a point where that’s no longer feasible.”
Already late fees on credit and auto loans have continued to rise, after the Fed raised interest rates by over 5 percentage points.
Millions of American students will also be affected soon when the pandemic freeze on repayments is set to be removed soon.
In the survey, investors attributed the decreasing availability but the ascending cost of credit and sky-high mortgage as the most significant hurdles for customers they will need to face before the end of the year.
“The traditional playbook for the economy and markets is challenging in this post-pandemic environment,” said Keith Lerner, co-chief investment officer at Truist Wealth. “Things are just taking longer to play out.”
