Sentiment slides again, yet US consumers keep spending
At a Glance
The current economic landscape reveals conflicting signals as consumer sentiment declines while spending remains resilient, particularly among high-income households. Per the full note from ING, consumer confidence, as measured by the Conference Board, has slid to 81.9 in September from August's 88.6, marking a 12-year low. This unprecedented drop raises concerns over future consumption patterns, especially as rising fuel costs and job security fears weigh heavily on the broader population. However, it is noteworthy that affluent households continue to drive spending growth, largely buoyed by substantial asset gains over recent years.
Key Takeaways
- 01Consumer confidence has dropped to a 12-year low, signaling heightened economic anxiety.
- 02High-income households continue to drive consumer spending, accounting for over 40% of total expenditures.
- 03The labor market differential indicates growing job security fears, further complicating the consumer sentiment landscape.
- 04The current divergence between sentiment and spending reflects changing economic conditions post-pandemic.
Full Analysis
What the desk is arguing
The desk argues that despite declining consumer confidence, spending dynamics are not uniformly negative. Historical correlations suggest that lower consumer sentiment typically precedes reduced spending, but currently, high-income households appear to be bolstering overall expenditures. Per the full note from ING, the labor market differential is at its weakest since March 2021, adding pressure on confidence levels.
Supporting this observation, the data indicates that households earning over $155,000, making up the top 20%, account for over 40% of total consumer spending. This concentration of spending among affluent groups suggests a divergence from the typical relationship between sentiment and spending, as lower-income households face significant challenges due to inflation and stagnant wage growth.
Where it sits in our coverage
Our consensus target for FX pairs remains at 1.075 with a range from 1.04 to 1.12. Firms are closely aligned with this assessment, including: - jpmorgan with a target of 1.10 for Mar26 - bofa with a target of 1.04 for Mar26
This view concurs with consensus sentiment, where the prevailing narrative suggests resilience in the spending power of higher-income groups despite overall pressure on consumer confidence. The desk’s call aligns towards the upper bound of the target spread.
How other firms see it
Most firms are currently aligned with the notion that high-income households will continue to support spending, insulating the economy from a sharper downturn. However, a few firms, such as bofa, express concerns that overall consumer sentiment could drastically undermine future growth, potentially leading to reduced spending from the middle and lower-income brackets.
This analysis plays into the broader implications for currency pairs like EUR/USD, where economic stability in the U.S. will be closely watched against European performance metrics. Additionally, the trajectory of the USD/JPY will remain a point of interest, particularly as the Bank of Japan continues to adjust its monetary policy in response to global economic influences.
Market Implications
Traders should monitor the behavior of high-income consumer spending as a potential support for the economy, particularly in upcoming economic releases. A breach of the 1.075 level could indicate a shift in sentiment towards a more adverse economic outlook.
From the original
Older quick take Quick take Published 15:32 United States Sentiment slides again, yet US consumers keep spending Consumer confidence fell further this month as worries about the cost of living and job security mount. Historically, these readings have been consistent with outright
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4 itemsUS consumers remain under pressure as sentiment slides
Current consumer sentiment in the U.S. has hit rock bottom, which typically would indicate a slowdown in spending; however, the high-income segment continues to drive demand. Per the full note from ING, consumer confidence is faltering due to weak wage growth, high fuel prices, and job security concerns, with the latest University of Michigan sentiment index dropping to 46.3. Despite these challenges, high-income households are maintaining expenditure patterns, a phenomenon supported by wealth gains and job stability that sets a K-shaped recovery narrative in play. This situation suggests that the forex market may see increased volatility as consumer spending dynamics diverge from classic sentiment indicators, with much depending on how the lower-income brackets react moving forward.
US sentiment underlines K-shaped consumer strife
The desk views the recent improvement in U.S. consumer sentiment, reflected in the University of Michigan's sentiment index which rose to 48.9, as a sign of a K-shaped recovery detached from actual spending trends. Per the full note from ing-think, while sentiment shows marginal recovery from its lows, particularly among higher-income households, overall consumer spending reflects broader economic challenges faced by the median demographic, particularly amidst stagnant real income. Big wealth gains among the top 20% of earners, who now account for over 60% of all spending according to Moody's Analytics, contrast sharply with the struggles of the median American who continues to experience rising costs against declining income. With no immediate market-moving events on the calendar, the current dynamics point to a potential for heightened market volatility influenced by this disparity in financial health among consumers.