The plural of anecdote is not data. Broad macro trends will contain and obscure a multitude of micro stories within. But when a refrain is repeated widely, it merits investigation.
In recent months, we have noticed growing murmurs about consumers falling behind. Reports of slower spending have come from recent corporate earnings calls:
-
Restaurant CEO: “…signs of some consumers trading down within our brands.”
-
Apparel CEO: “And in the U.S….the consumer…is a little soft coming into the year.”
-
Hardware CFO: “The home improvement market still faces headwinds as we look ahead to fiscal 2024.”
Evidence of overstretched households is also emerging from the financial planning sector. In 2023, 3.6% of 401(k) account holders took an early withdrawal for economic hardship. These withdrawals require demonstrating an “immediate and heavy” financial need in order to not be taxed at punitive rates.
NOT EVERYONE IS FEELING TODAY’S FAVORABLE ECONOMIC CONDITIONS.
The core of our soft landing call has been favorable employment prospects, but not everyone who is still working is feeling well about the economy. The University of Michigan Consumer Sentiment Index reached a record low as inflation peaked in summer 2022. While sentiment across income strata fell uniformly, consumers in the bottom third of the income distribution are still dour, while higher earners have become more upbeat.
Lower-income households are not enjoying wealth effects from high house prices and the equity rally, while they still must contend with a higher cost of living. Combined with rising consumer credit delinquency, evidence of a bifurcated recovery is mounting.
Expansions are healthiest when the broadest range of cohorts are progressing. The growing divergence of experience in the U.S. hasn’t yet threatened our soft landing call. But we’d feel more confident in that outlook if the cushion under the cycle was a little wider.
Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific legal or tax advice from your own professional legal or tax advisors. Information is subject to change based on market or other conditions and is not intended to influence your investment decisions.
© 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/terms-and-conditions.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
© Northern Trust
Read more commentaries by Northern Trust
