Dour consumers have cut their spending. Could that help trigger a recession?
Dour consumers have cut their spending. Could that help trigger a recession?
There were some seriously mixed signals from the consumer economy today. Retail sales were down by 1% in March, after surging in January and holding pretty much flat in February.
On the other hand, the University of Michigan consumer sentiment index for April was up a smidge, though not enough to claw back its big decline in March, when bank runs and failures made headlines.
Given that this economy is more likely to fall into a recession, it’s a wonder where it is right now.
A good way to look at it is through the lens of cartoons from the ’60s — Wile E. Coyote chasing the Road Runner, running off a cliff, spinning his legs and then plummeting with a crash.
So, are U.S. consumers now that coyote, falling to the bottom of the economic cliff?
“No, we’re not seeing a falloff of the cliff at all,” said Joanne Hsu from the University of Michigan. She said it’s more like the coyote is windmilling, trying to stay aloft by spending it up. Hsu pointed out the decline in March retail sales partly reflects falling prices for things like gasoline.
Meanwhile, spending on services like travel and lodging is still pretty strong. Bill Adams at Comerica Bank said there definitely has been a decline in spending on goods: “Furniture, electronics, hardware and building materials,” he said.
As the Fed has raised interest rates, credit card purchases have become more expensive and home sales have gone into a slump.
“Typically when people buy a new home, they’re likely to buy more things to put in their home, and it looks like the slowdown in the housing market is flowing through to consumer spending,” Adams said.
The recent bank failures aren’t helping. Jesse Wheeler at Morning Consult said the firm fielded its monthly consumer survey just as Silicon Valley Bank was going belly up.
“It showed a sharp increase in U.S. workers who expected to experience a loss of income,” he said. “And it’s been concentrated in expectations for future conditions, for the broader economy and also for personal finances.”
Joanne Hsu of the University of Michigan said consumers will keep spending, as long as they keep getting paychecks and raises.
“Consumers are still expecting their living standards to continue to deteriorate,” she said. “But they’re not expecting to lose their jobs. I think that is the main point.”
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