American consumers to forge ahead through credit strains and layoff threats
AMERICAN shoppers will not be deterred by mounting credit-card bills or the recent ripple of layoffs, according to the latest Bloomberg Markets Live (MLIV) Pulse survey.
More than half of 463 respondents said spending will stay strong or get even stronger in 2024, with consumers set to keep shelling out for airline tickets, restaurant meals and concerts. The year’s first jobs report, which showed hiring and wages on the rise, offered a boost to that view.
There’s been some less rosy news from the labour market too, after a spate of layoff announcements at consumer companies such as Lowe’s, Macy’s and Whirlpool – and more are expected to follow as bosses seek to shore up profits. Even so, with American paychecks now outpacing prices, many investors are betting on a re-run of 2023 when household spending upset forecasts for a pullback.
“We really haven’t seen any signs of the consumer slowing down,” said Brittany Quatrochi, an analyst at broker Edward Jones. “Inflation pressures have impacted a lot of consumers, but ultimately you still have a strong jobs market. They’re still going to feel comfortable and continue to spend.”
That’s the majority view in the MLIV Pulse poll – but only just. Some 45 per cent of those surveyed expect consumer spending to decelerate in the coming months. Economists are inclined to agree.
Along with potential job cuts, respondents in that camp also cited changing shopping patterns – and indications that more people are having trouble repaying their debts.
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Kevin Hochman is seeing “mixed messages”. The chief executive officer of Brinker International – parent company of restaurants Chili’s Grill & Bar and Maggiano’s Little Italy – said some consumers are set to turn more conservative, while others plough ahead.
“We don’t see a pullback in any of our consumer income demographics,” Hochman said on a recent earnings call. “But on the flip side, we’re also seeing improved responsiveness to TV ads that showcase really sharp value.”
Resilient shoppers are a tailwind for retailers such as Amazon.com and Walmart. But with Americans hunting harder for bargains, almost four out of five MLIV Pulse respondents said most consumer companies will seek to maintain profits by laying off staff or finding other cost cuts, rather than marking up prices.
The pandemic cost-of-living surge has already cooled off, leaving consumers feeling a lot better. The University of Michigan’s gauge of sentiment just posted its biggest back-to-back jumps in more than three decades. High prices remain a frustration, forcing many families to alter how they spend. But unemployment held at a historically low rate of 3.7 per cent in January, and hiring comfortably beat forecasts.
What’s more, while the excess savings that helped power consumption last year have dwindled, wages and salaries are growing faster than inflation – and that’s where households get most of their shopping budgets. About 63 per cent of MLIV Pulse respondents said Americans will keep spending on experiences such as travel, eating out and concerts.
‘Staying power’
What worries some analysts is that Americans do not just spend out of paychecks – they have increasingly been relying on credit too.
So-called revolving credit has climbed over the past year, as has take-up of buy now, pay later programmes. All of that borrowing may be one reason why American consumers defied the doomsayers last year.
“If I could have known at the start of last year how much revolving consumer credit was going to increase, I think I would’ve had a much better sense of the staying power of the consumer,” said Tim Quinlan, a senior economist at Wells Fargo & Co.
Now, more and more Americans are struggling to pay those bills, especially with borrowing costs at multi-decade highs.
Credit card delinquency rates are above pre-pandemic levels. Almost 3.2 per cent of card balances were at least 30 days past due as at the end of September, according to a Federal Reserve Bank of Philadelphia report, the highest share in more than a decade.
More than three quarters of MLIV respondents expect consumer delinquencies and defaults to keep creeping higher in 2024, though only 15 per cent expect a surge. That’s fuel for the glass-half-empty view.
“The things that drove us to the heady pace of spending last year are not available as drivers for us again,” Quinlan said. “The consumer’s going to continue to spend, but not at the breakneck pace that we saw in the second half of 2023.”
The MLIV Pulse survey is conducted weekly among Bloomberg readers on the terminal and online by Bloomberg’s Markets Live team, which also runs the MLIV blog. This week, the survey looks at the huge buildup in short-volatility trades. Share your views here. BLOOMBERG
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