American consumers are facing challenging times, with household spending expected to cool further, according to Chris Watling, the chief executive of the financial advisory firm Longview Economics. In an interview with CNBC, Watling warned that the decrease in spending power is signaling trouble for the economy.
Watling pointed to the latest economic indicators, which show that consumers have been quickly running out of excess cash, while household savings have been under growing pressure. He emphasized that even though retail sales have been strong in recent months, the household savings ratio has been decreasing, and real income growth has been negative for three months.
The strategist expressed concerns about the labor market, stating that it is under pressure at the margins. While there was a good payrolls month, Watling highlighted that many indicators of the labor market’s future are fraying at the edges. He warned that a substantial labor market downturn could lead to a recession in the country, stating that the US is in for a tough time in the next few months.
Backing up Watling’s warnings, a recent study by the University of Michigan revealed that US consumer sentiment deteriorated in October for the third consecutive month. Households are expecting higher inflation over the next year, which is weighing on their outlook. Moody’s Investors Service also noted that inflation and a deteriorating economic outlook have been impacting consumers. The report mentioned that individual spending drives about two-thirds of the US economy, and the majority of Americans have less savings than before the pandemic, after adjusting for inflation.
These warnings come at a time when the US is also grappling with a surge in national debt. According to RT, the US has added $500 billion to its debt in less than a month. The combination of decreasing spending power, inflation concerns, and a mounting national debt raises concerns about the overall health of the US economy.
The implications of these challenges for the average American could be significant. With household savings dwindling and inflation expectations rising, individuals may have less disposable income for everyday expenses. This could lead to a reduction in consumer spending, which has been a driving force behind economic growth in the US.
Moreover, a labor market downturn could result in job losses and income instability for many Americans. The consequences would further strain household budgets and potentially lead to a decrease in consumer confidence. If consumers become less confident in the economy and their own financial security, they may cut back on spending even more, creating a downward spiral that could further weaken the overall economic outlook.
It is crucial for policymakers and economic experts to address these challenges promptly and effectively. Measures such as increasing wages, supporting job creation, and implementing policies that promote household savings and financial stability could help alleviate some of the pressure on American consumers. By focusing on sustainable and inclusive economic growth, the US can navigate these challenging times and foster a stronger and more resilient economy for the future.