LIVE MARKETS-Consumers stay strong, but a bear market could change that
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CONSUMERS STAY STRONG, BUT A BEAR MARKET COULD CHANGE THAT
Despite high inflation and elevated fuel costs, Sonu Varghese, chief macro strategist at Carson Group, argues in a note out on Wednesday that the US consumer remains in surprisingly good shape.
His main point is that households are still spending rather than pulling back. Recent retail sales data showed solid spending not only on essentials but also on discretionary items such as restaurant meals. Varghese notes that dining out is often one of the first expenses consumers cut when budgets come under pressure. Instead, households appear willing to absorb higher prices while maintaining spending volumes.
The labor market is telling a similar story. Jobless claims remain historically low, layoffs are subdued and continuing claims suggest unemployed workers are finding jobs relatively quickly. Taken together, strong spending and a healthy labor market point to a consumer sector that continues to support economic growth.
Varghese also highlights the strength of household balance sheets. Debt levels relative to income remain well below pre-financial-crisis norms, while household net worth relative to income is at a record high. Unlike the period leading up to the housing bust, consumers are not borrowing aggressively to fund spending.
The caveat is that much of this strength is tied to rising asset prices, especially stocks. Equity holdings now account for a record share of household net worth, leaving consumers more exposed to market swings than in the past.
That leads to Varghese's bottom line: the biggest threat to the consumer is not excessive debt or a weakening labor market, but a sustained bear market. A prolonged decline in stock prices could erode household wealth, slow spending, weaken hiring and ultimately weigh on economic growth.
In short, consumers remain a key source of economic resilience. But with household wealth increasingly tied to the stock market, a prolonged bear market may now pose a bigger risk to the economy than rising debt levels.
(Terence Gabriel)
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