USA Spend-tacular: A report into the health of the US Consumer
18 November 2024
American households have amassed significant wealth since the onset of the COVID-19 pandemic, fuelled by soaring stock prices, rising home values, and increased liquid assets. In this report from our partner, Northcape Capital, the team examines the overall health of the US consumer and the potential implications for inflation, interest rate settings and the US economic outlook.
This information has been prepared by Northcape Capital. Please note that the below is an extract, click here to read the full report.
The US consumer has been resilient…but for how long?
In the initial shock of COVID-19 in early 2020, the U.S. economy experienced a sharp contraction, leading to a brief recession. However, the subsequent recovery has been characterized by strong GDP growth and a resilient job market. Despite fluctuations and challenges, including inflation and supply chain issues, the U.S. economy has not officially entered a recession since that downturn. This resilience has surprised some market spectators and the question for investors going forward is how long can this continue?
A key driver of economic resilience has been the health of the US consumer whose spending at aggregate levels has been strong. Consumer spending is the biggest component of GDP, accounting for around two-thirds of this metric. As such the continued health of the US consumer is key to the economic outlook. Compositionally this spending is skewed to high income households, noting the top 40% of households account for around 65% of total consumer spending.
Employment and spending in the U.S. are closely interconnected in a cyclical manner. When employment rises, people have more income, which typically leads to increased consumer spending. This heightened demand for goods and services encourages businesses to hire more workers, reducing unemployment further.
The US unemployment rate currently remains at decade lows at 4.1%. If one compares today’s labour outcomes with what the Congressional Budget Office (CBO) expected pre-pandemic, employment in the latter half of 2023 came in at 2 million jobs higher than expectations. Had unemployment figures came in line with expectations, then the unemployment rate would be circa 5.5%.
READ MORE – USA Spend-tacular: Wealthy Hands on the Wheel?
The information in this document is published by Warakirri Asset Management Limited ABN 33 057 529 370 (Warakirri) AFSL 246782 and issued by Northcape Capital ABN 53 106 390 247 AFSL 281767 (Northcape) representing the Northcape’s view on a number of economic and market topics as at the date of this report. Any economic and market forecasts presented herein is for informational purposes as at the date of this report. There can be no assurance the forecast can be achieved. Furthermore, the information in this publication should only be used as general information and should not be taken as personal financial, economic, legal, accounting, or tax advice or recommendation as it does not take into account an individual’s objectives, personal financial situation or needs. You should form your own opinion on the information, and whether the information is suitable for your (or your clients) individual needs and aims as an investor. While the information in this publication has been prepared with all reasonable care, Warakirri and Northcape do not accept any responsibility or liability for any errors, omissions or misstatements however caused.
