Consumer spending growth in US to remain below trend in 2HCY24

May 15, 2024 (MLN): Consumer spending growth is waning amidst sticky inflation, weaker income growth and deteriorating consumer sentiment, setting the stage for below trend consumer spending growth in 2HCY24, according to a new Fitch Ratings report.

“Fitch expects annual consumer spending growth of 1.9% in 2024, a modest slowdown from 2.2% in 2023. Much of the slowdown is expected to kick in during 2H24 as income growth decelerates further, the boost from pandemic savings dissipates and higher real interest rates persist,” said Olu Sonola, head of U.S. economic research.

Household nominal disposable income increased in 1Q24 by 4.3%, supported by strong employment and nominal wage growth. Real household disposable income growth was 1.7% year-over-year in 1Q24, a notable downshift from approximately 4.1% in the prior two quarters.

Real labor income, the biggest contributor to total income, steadied at 2.7% during 1Q24. A cooling labor market will likely contribute to a further weakening of labor income growth in 2H24.

Consumer net worth increased by 8.3% in 2023, primarily due to the rebound in the equity market and real estate equity.

Consumers continue to use excess savings, averaging $44 billion monthly since January 2024. Estimated excess savings were $1 trillion in March 2024, down 46% from the $2.1 trillion peak in August 2021.

Debt service is expected to trend higher in the coming quarters as higher financing costs take hold for longer. Year-over-year growth in credit card spending peaked at the end of 4Q22 at 15.1%, trending down to 7.9% in 1Q24.

Year-over-year wage growth for all private industry employees is declining, but still elevated, with key measures of wage growth ranging between 4.3% and 4.7%.

Sticky services inflation and still-high nominal wage growth are likely to keep the Fed quite cautious before embarking upon rate cuts.

Recent data have shown an uptick in core inflation momentum, with Fitch raising its end-2024 Consumer Price Index (CPI) forecast to 2.9% from 2.6%. The recent reversal in core services momentum complicates the timing of interest rate cuts during 2HCY24.

Copyright Mettis Link News