Trouble is brewing for the U.S. consumer, in line with one strategist, and a substantial labor market downturn may kickstart a recession.
“I believe the U.S. consumer is strolling towards a cliff, mainly,” Chris Watling, chief government of economic advisory agency Longview Economics, informed CNBC’s “Squawk Box Europe” on Tuesday.
He stated that a slew of latest financial indicators had confirmed customers are rapidly working out of extra money, whereas family financial savings are coming beneath strain.
“Of course, retail gross sales have been fairly robust for the previous couple of months and everybody will get fairly enthusiastic about that, however, truly, if you happen to take a look at what is going on on, the family financial savings ratio has been run down, and, in actual fact, actual revenue progress has been unfavorable for 3 months,” Watling stated.
“So, it isn’t fairly all excellent news. I imply, fairly the reverse, I believe there are some actual challenges coming for the U.S. consumer.”
His feedback come whilst information suggests the U.S. financial system may have turned in another stellar performance, heading into the ultimate a part of the yr.
Gross home product is projected to publish a 4.7% annualized acquire for the third quarter, in line with a Dow Jones consensus estimate. The Commerce Department will launch its first GDP estimate at 8:30 a.m. ET.
Shoppers carry retail luggage alongside the Magnificent Mile buying district in Chicago, Illinois, on Tuesday, Aug. 15, 2023.
Kelter Davis | Bloomberg | Getty Images
If that forecast materializes, the print would replicate the strongest U.S. financial output for the reason that remaining three months of 2021, when progress was simply shy of seven%.
Many strategists, asset managers and CEOs stay involved concerning the longer-term financial outlook and can proceed to carefully monitor forward-looking indicators for clues on whether or not the U.S. can keep away from a recession.
The U.S. financial system and its pivotal consumer part have been written off many times before, however the Federal Reserve’s transfer to maintain liquidity flowing within the sector has partly helped to maintain progress afoot.
‘The U.S. is in for a powerful time’
“We see on the margins the consumer is beneath a lot of strain and, in actual fact, the labor market is beneath a lot of strain as effectively. We had a good payrolls month, however if you happen to take a look at a lot of the symptoms of the place the labor market is more likely to go, a lot of them are fraying on the edges,” Watling stated.
“We’re going to get to the purpose within the subsequent few months once I assume the labor market begins to deteriorate extra meaningfully and that’ll kickstart the recession once we get there,” he added.
Asked what his forecast would probably imply for the inventory market, Watling replied, “I believe management most likely is altering on this inventory market. Tech has been beneath a lot of strain since July, and I believe the inventory market is struggling to know actually precisely the place it needs to go.”
“From our standpoint although, I can see a bounce for a month or two. It’s been fairly overwhelmed up, markets have been coming down since July however I believe net-net, you wish to be underweight equities in case you are trying past the following few months,” he continued. “I believe the U.S. is in for a powerful time.”
— CNBC’s Jeff Cox contributed to this report.