What to Watch for in a Potentially Slowing Economy

Global financial markets have proven volatile in recent months, alternating between bearish and – more recently – decidedly more sanguine outlooks. We believe this reflects a widening range of economic outcomes. While it may appear that a resilient economy and steady corporate performance belie our sense of caution, we see a common thread among key indicators that reveals an environment that is potentially more fragile than many market participants realize.

Woe be the consumer?

As evidenced by blow-out third-quarter U.S. gross domestic product (GDP) data, the U.S. consumer continues to power the domestic economy. Consumption accounted for 2.69 percentage points of the aggregate 5.2% annualized quarterly growth rate. We don’t know how much longer this pace can last. The bulge in personal savings owed to pandemic-era stimulus packages has largely run its course. Furthermore, consumption has more recently been powered by credit cards. With borrowing costs having reset to decade-plus highs, we question American households’ desire – or ability – to keep racking up such purchases.

U.S. personal savings and credit card debt

Households are saving less of their pay checks