As the United States approaches the Thanksgiving holiday, consumer potential seems to be gradually cooling.
The latest forecast from the American Retail Federation shows that this year will be the weakest holiday season since 2019. A consumer survey released by the University of Michigan found that inflation remains an important factor limiting consumption. After accelerating expansion in the third quarter, the turning point of the US economy may become more apparent during this holiday. As the Federal Reserve's interest rate hike cycle approaches its end, the resilience of future consumers will ultimately become one of the key factors in whether the US economy can achieve a smooth soft landing.
Consumer confidence is declining
As Americans prepare for holiday gatherings, prices still pose a challenge to people's enthusiasm for consumption.
Federal Reserve Governor Christopher Waller said last week: "Inflation rates have decreased, but prices have not decreased. They have only risen at a slower rate. The idea now is that prices will return to 2021 levels, which may not happen." Statistics show that the purchasing power of the US dollar has decreased by about 15% since 2021.
Consumer sentiment continues to decline, with a University of Michigan survey released on Wednesday showing that the consumer confidence index fell 2.5 percentage points in November from the previous month to 61.3. People are worried about a resurgence of inflation, with one-year and five-year inflation expectations rising to 4.5% and 3.2% respectively. It is worth noting that as the main consumer group, the attitudes of young and middle-aged consumers towards the economic outlook have deteriorated.
At the same time, there are signs of loosening in the most tense labor market in recent decades. In October, the non agricultural report added 150000 new jobs, setting a new low in over two years. Private sector employment grew by less than 100000, and the unemployment rate rose to a 21 month high of 3.9%.
As excess savings gradually deplete, Americans are becoming increasingly reliant on credit cards. The New York Fed's report on total household debt levels in the third quarter found that total credit card debt increased by 4.7% to $1.08 trillion. Due to the Federal Reserve's significant interest rate hike, borrowers' costs are significantly increasing. The Bankrate database has found that the average annual credit card interest rate (APR) in the United States has exceeded 20%, which may become a potential headwind.
The Federal Reserve released a report this week stating that the proportion of respondents who plan to apply for more credit in the next year decreased to 25.1% in October, down from 26.7% this year. The report indicates that credit applications for new credit cards, car loans, mortgages, and housing refinancing are expected to decline. Respondents also believe that the likelihood of future credit applications being rejected is "significantly higher".
Retailers face challenges
American retailers are preparing for a challenging holiday season.
Previously released data showed that US retail sales fell 0.1% month on month in October, marking the first decline in nearly 7 months and sounding an alarm for the market. The higher borrowing costs seem to have weakened consumer demand for new cars and other expensive goods. In October, the revenue of American car dealerships decreased by 1%, and the speed of car sales has slowed from an annualized 16.6 million units in early summer to 16 million units.
At the same time, sales of household items such as beds, tables, sofas, and office desks have been declining for four consecutive months. The interest rate hike has driven mortgage interest rates to nearly 8%, suppressing home sales and furniture purchases, and leading to a decrease in home appliance sales. Morning Consult has released a report stating that the proportion of American consumers delaying major product purchases has increased.
Wall Street economists say that as interest rates may remain high in the first half of next year, the impact on retail sales and consumer spending will continue. Mickey Chadha, a senior credit analyst at Moody's, said: "Due to rising interest rates and reduced disposable income, consumers are unwilling to spend on non essential and high priced goods, and the automotive, home and clothing categories are becoming weak
According to data from the National Retail Federation of the United States, although it is expected that the number of Americans shopping during the Thanksgiving five day holiday this year will reach a historic high of 182 million, the total retail sales during the holiday season will reach $957.3 billion to $966.6 billion, an increase of 3% to 4%, reaching a new low since 2019.
Last week, Wal Mart, the largest retailer in the United States, warned that consumers would be cautious with the arrival of the holiday shopping season. Recently, home decoration retailer Lloyd's, electronics retailer Best Buy, and department store chain Coles have all lowered their annual sales expectations. Best Buy CEO Corie Barry said, "In the recent macro environment, consumer demand has become more uneven and difficult to predict
Consumption accounts for over 70% of the US economy, and with further pressure on household expenditure growth, the turning point of GDP growth may have arrived.
The Atlanta Fed's GDPNow tool predicts that the US economic growth rate will slow to 2.2% in the fourth quarter. The currently tense job market and high wage growth are expected to continue to stimulate consumer demand, helping the United States overcome recession and achieve a soft landing. How the Federal Reserve gradually exits the tightening cycle in the future will also become a major factor affecting business activity and consumer demand.