Why a Soft landing for the U.S. Economy Rings Hollow

Scott Anderson
Posted by Scott Anderson
Chief Economist

With U.S. stock prices near all-time highs, equity investors have already positioned themselves for a soft landing for the U.S. economy and an acceleration in earnings and economic growth next year.

Encouraging tweets on the prospects for a phase 1 U.S.-China trade agreement, and a Fed pause in the recent rate cut cycle were the initial catalysts, but then the stock price gains themselves created their own wave of investor enthusiasm as the Dow moved above 27,000 and then in less than a month 28,000.

The rose colored glasses have gotten so thick that few can even recall how shrill the recession warnings became this summer. At this point, it is important to remind ourselves that the stock market isn’t the economy.  In fact, only 55% of Americans report owning any individual stocks, including mutual funds, 401Ks or IRAs.

So while the stock market has bounced, we have yet to see a meaningful pickup in business investment or exports that would change our view of our economic future.  Instead, we have seen more concerning signs that consumer spending, the last leg of the stool supporting the U.S. economy, may no longer be on solid ground. Allow me to share a few observations for your consideration.

Consumers’ willingness to spend on big-ticket items like automobiles has plunged since May. According to the Conference Board, only 9.9% of consumers plan to buy a automobile over the next six months, down from the 15.1% who said they would buy a car back in May. That is the lowest percentage reported for this question since October 2015.

Consumers also appear to be cutting back sharply on discretionary spending like visits to full-service restaurants.  This is usually one of the first areas where consumers pull back when budgets get tight. In this category, consumer spending hasn’t been this slow since 2010.

The Bloomberg consumer comfort index shows a sharp drop in consumer confidence for part-time workers and renters, suggesting lower-income households that are likely sharing in the outsized stock market gains, may be increasingly falling on harder times.

It’s still early days, but these signs of consumer reluctance are a good reminder that stock market isn’t the economy and record stock prices are no guarantee of a soft landing for the U.S. economy in 2020.

To learn more, check out this week’s full U.S. Outlook Report.

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