Earnings and Economic Data Indicate Consumer Control of the Economy
Since late last year, there have been concerns about a potential recession in 2023 due to a predicted decline in consumer spending power. However, recent second-quarter profit reports from companies like Amazon, Walmart, and Home Depot have cast doubt on these predictions. Additional consumer statistics, such as deposit levels at Bank of America and GM car sales trends, paint a different picture of the consumer economy. Real incomes are rising, inflation is decreasing, and consumers are holding onto a significant portion of their savings accumulated during the pandemic.
Resilience of the Consumer
Analysts, like Arun Sundaram from CFRA Research, highlight the resilience of the consumer. Contrary to expectations, consumer spending has not plummeted, and the data suggests a rebound in economic indicators that previously signaled a recession. Retail sales have shown growth, and consumer savings rates are rising. Stimulus money has played a significant role in helping households save over a trillion dollars, and despite inflation and increased spending on home renovations and vacations, consumers still retain a substantial portion of these savings.
Stability in Consumer Debt
Contrary to concerns about consumer debt, data from banks like Bank of America and JPMorgan Chase indicates stability. Consumer credit card balances per account are lower than in 2019, and delinquency rates remain at 2019 levels or lower. Mortgage credit quality is solid, with no net chargeoffs reported by JPMorgan in the second quarter. While credit card balances have reached record highs, the overall macro data does not support the notion of stretched consumers. The percentage of household income needed to service debt is comparable to pre-pandemic levels.
Consumer Spending Shifts
While there has been a decline in spending on furniture, electronics, and apparel, the auto industry has experienced significant growth. General Motors reported a 15% increase in U.S. unit sales, and consumer spending on new vehicles rose by $40 billion in the first half of the year. Moody's suggests that pent-up demand and the recovery of the auto industry could contribute to sustained growth.
In conclusion, the earnings and economic data indicate that consumers are still in control of the economy. Despite initial concerns about a recession, the resilience of consumers, stable levels of consumer debt, and shifts in spending patterns suggest a more positive outlook. While challenges like potential government shutdowns remain, the excess savings held by consumers provide a cushion against economic shocks. Overall, the data suggests that consumers continue to play a crucial role in driving economic growth and stability.
Implications for New Businesses
The resilience of the consumer, as demonstrated by the current economic data, offers a "hot take" for new businesses. This resilience, coupled with the stability in consumer debt and shifts in spending patterns, indicates that consumers continue to be a driving force in the economy.
Adapting to Consumer Spending Shifts
New businesses should pay close attention to these shifts in consumer spending. The decline in spending on certain goods, such as furniture and electronics, and the increase in others, such as automobiles, highlight the importance of understanding evolving consumer preferences and adapting business strategies accordingly.
Capitalizing on Consumer Resilience
The resilience of consumers, their increasing real incomes, and the significant savings they hold present opportunities for new businesses. Businesses that can tap into this consumer strength, cater to their changing preferences, and offer value can potentially thrive even in uncertain economic times.
In conclusion, the current economic data provides a positive outlook for new businesses. The resilience of consumers, their substantial savings, and the shifts in their spending patterns are key factors that new businesses can leverage. While challenges remain, the data suggests that with the right strategies, new businesses can capitalize on the strength of the consumer to drive growth and success.
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