5 Signs the Resilient US Consumer May Be Starting to Buckle

• There are a handful of signals that point to the strong US consumer finally slowing down. 
• Macquarie strategist Thierry Wizman, foresees the US economy slipping into a consumer-led slowdown. 
• He said a downturn could hit sometime between now and the end of the first quarter of 2024.

American consumers are finally showing signs of slowing as they blow through their savings, and there are a handful of warning signs that the economy could soon tip into a spending recession.

Thierry Wizman, a strategist at Macquarie Global, foresees the US economy slipping into a consumer-led slowdown sometime between now and the end of the first quarter in 2024. A major pullback in consumer spending could force GDP growth to grind to halt, he told Insider, pushing the overall economy into borderline recession territory.

Wizman’s downbeat forecast is counter to what other commentators have said, as consumers have kept up their spending spree over the third quarter in a row this year. Retail sales, jumped 0.7% during the month of September, more than double what economists were expecting.

But the resilient spending is itself the problem: spending has been so strong, it’s bound to whiplash in the other direction as savings run dry and Americans financial situations change, Wizman said. 

“There were reasons why Q3 was very strong. Getting through all the revenge travel … the concert tours,” Wizman said. “The problem, of course, is that it’s usually followed by a hangover.”

“Like all hangovers, this one will happen soon after the binge,” he added in a note this week.

The economy is now flashing a handful of warning signs that the US consumer is running out of steam. Here are five signals of weakness that point to a spending recession on the way. 

1. Credit card delinquencies are rising

Credit card holders that became newly delinquent rose to 2% the last quarter, about double the rate recorded in the first quarter of 2021. Meanwhile, Americans who were seriously late in paying their credit card balances – by at least 90 days – rose to nearly 6% the last quarter, according to the New York Fed’s latest Household Debt and Credit report. 

Credit card delinquencies also saw a particularly high jump for those who already had auto and student loan debt, the report added. That’s a sign financial stress is growing, Wizman said, which is likely to lead people to pull back on spending.

2. Americans are saving less

Federal Reserve/Bureau of Economic Analysis

The personal savings rate slumped further last month. Americans saved an average 3.4% of their disposable personal income in September, down from 4% in August, according to the Bureau of Economic Analysis. That’s well-below the pre-pandemic savings rate, when Americans were stashing away around 7% of their disposable personal income.

“That’s actually very, very low compared to historic norms,” Wizman said of the current savings rate. “So there has to be at some point an adjustment.”

Consumers have also drawn down much of their savings from the pandemic. Excess savings were likely depleted at the end of last quarter, according to a study from the San Francisco Fed.

3. Consumer confidence has fallen three months in a row

Consumer confidence slipped to 102.6 in October, down from a reading of 104.3 the prior month, according to the Conference Board. That marks the third month in a row that consumers’ attitudes have soured, based on factors like inflation, stock prices, and interest rates.

Meanwhile, the Conference Board’s Expectations Index, which reflects consumers’ short-term economic outlooks, slipped to 75.6 in October. It remains slightly below a key threshold of 80, which has traditionally signaled a recession coming within the next 12 months.

“Consumer fears of an impending recession remain elevated, consistent with the short and shallow economic contraction we anticipate for the first half of 2024,” the Conference Board said in a statement.

4. Consumers aren’t planning to splurge this holiday season

Americans are looking less likely to splurge, even as they head into the holiday season. A McKinsey survey of 1,000 US consumers found that just 35% say they plan to spend big this year, lower than the 39% of people who said they were willing to splurge ahead of the holidays in 2022. 

A separate Morgan Stanley survey found that 69% of people are waiting for retailers to offer discounts before they start shopping. On average, consumers are looking for a discount of around 30%, strategists said. 

5. Retailers aren’t hiring as much ahead of the holidays

Holiday hiring among retailers slumped to 135,000, the lowest level in about five years, according to data from the Bureau of Labor Statistics.

“Hiring for the holiday season is generally done in October, and adding up new jobs created in the BLS-defined holiday season retail sectors in the latest employment report shows that retailers expect a weaker holiday season,” Apollo chief economist Torsten Slok said in a note on Tuesday.