U.S. Consumers: Recession... What Recession?

Mid Week Bond Update

U.S. Consumers: Recession... What Recession?

With consumer spending supported by strength in disposable income, the consumer-supported U.S. economy appears strong for now.

Worldwide concerns about recession wax and wane. But as those worries have picked up of late, it’s worth noting that one of the key drivers of global growth, U.S. consumer spending, is continuing to show strength. More important that strength looks to be based on solid increases in disposable income.

Consumer spending is widely reckoned to comprise more than two-thirds of the U.S. economy. So when consumer spending is supported by sentiment-driven borrowing rather than by actual income growth, the fear is that consumption can stop suddenly if consumers get nervous – or credit cards get maxed out – pulling the U.S. economy into recession.

U.S. Consumer Spending, Supported by Income, Continues Strong

Source: Bloomberg, as of 16 July, 2019. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


But when spending is supported by actual disposable income, it’s consumer needs, desires and the lure of retailers that can come to the forefront. And if the just-released retail sales figures for June are any guide, retail consumers, if worrying about their budget, aren’t letting it show.  That’s not to dismiss all concerns about impending recession based on other indicators. But for now, U.S. consumers appear not to be among them.

On the rise: U.K Wages

For the three months through May, average weekly earnings in the U.K., excluding bonuses, rose at a 3.6% annual rate, the fastest pace in 11 years and above consensus expectations.  At the same time, the number of people in work rose 28,000 to a record high, leaving the jobless rate at a 44-year low of 3.8%. Total pay rose 3.4%, boosted by wage settlements in the National Health Service, as well as April’s 4.9% increase in the minimum wage.

The increase handily outpaced the 2% average rate of consumer price inflation during the period, adding to inflation-adjusted household earnings.  Total hours worked rose 1.9% from the year-ago three-month period.

But wage growth has outpaced overall economic growth; for the same three-month period, GDP rose only 1.7%, raising the question of whether the pace of wage and job growth can be maintained.  And as the current October 31 deadline for the start of Brexit approaches, it’s unclear what the effect would be on the current balance of supply and demand for labor.

On the slide: Exports from Asia

China reported its overall export growth for June as declining 1.3% year-on-year, with exports to the U.S. falling 7.8% over the same period. (Imports from the U.S. slumped 31.4% during the same period).

But Asia’s export slowdown affected other countries as well. Exports from India fell 9.7% from a year ago, compared with a 3.9% gain in May, with Prime Minister Narendra Modi’s export promotion plan running into resistance from the U.S. imposition of tariffs on Indian exports. Indonesia’s overall exports fell 9% over the same period as well.

It’s difficult to disaggregate the effects of two-country tariffs on the region overall; a slowdown in imports caused by tariffs can have ripple effects on the overall growth of other countries.  But it seems fair to say that a component of the slowdown in regional exports is due to a slowdown in growth that may be independent of any particular two-country trade disagreements.




All data Source: Bloomberg as of July 16, 2019 unless otherwise specified.


Gross Domestic Product ("GDP") is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

"Brexit" is a shorthand term referring to the UK vote to exit the European Union.

The Personal Consumption Expenditures (PCE) Price Index is a measure of price changes in consumer goods and services; the measure includes data pertaining to durables, non-durables and services. This index takes consumers' changing consumption due to prices into account, whereas the Consumer Price Index uses a fixed basket of goods with weightings that do not change over time.


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