The Nihon Keizai Shimbun recently published an article entitled "Three Challenges Faced by American Personal Consumption". The article is compiled as follows:
Personal consumption, which accounts for 70% of the US Gross Domestic Product (GDP), is facing a test. In September, the US consumer confidence index hit a new low after four months. Savings are running out, and if gasoline prices continue to rise, it may increase the difficulty of a soft landing for the US economy.
The September US Consumer Confidence Index released by the World Federation of Large Enterprises decreased by 5.7 percentage points from the revised value of the previous month to 103.0. The Consumer Confidence Index is considered a leading indicator of personal consumption in the United States, and its current values reflect consumers' inner concerns.
Savings are about to run out, energy prices, including gasoline, are rising, and student loans are being repaid again... At the financial statement presentation held by Wal Mart, an American retail giant, in August, CEO Dong Minglun mentioned that personal consumption may be under pressure in the coming months when listing concerns.
Excessive savings, government subsidies and consumption curbs during the COVID-19 epidemic pushed up the assets accumulated by American households, which peaked at more than $2 trillion in 2021. Consumers have overcome unemployment and high inflation with higher savings than before.
According to an analysis by the San Francisco Federal Reserve Bank, as of June this year, excessive savings have dropped by 90% to $190 billion compared to 2021, and are expected to run out in the third quarter of this year. However, according to calculations from Nomura Securities in the United States, the current savings balance is still $500 billion, but the overall trend of a significant decrease compared to its peak remains unchanged.
Household expenses have also become increasingly inadequate. The "savings rate", which shows the proportion of savings in income, has dropped to 3.5%, which is already lower than the pre pandemic level.
The impact of resuming student loan repayment on consumption is equally worrying. In August 2022, the Biden administration introduced a partial exemption policy for student loans, but it was ruled invalid by the US Supreme Court in June 2023. The existing loan will bear interest from September 1st and be repaid in October.
The number of people in the United States currently carrying student loans exceeds 40 million. According to the special provisions of the epidemic, repayment can be waived for a period of three and a half years starting from March 2020. Some households have shifted the money originally used for repaying loans to other consumption, which has played a certain role in supporting the economy.
Goldman Sachs calculates that restarting loan repayments will result in a 0.5 percentage point decrease in fourth quarter GDP growth (calculated at an annual rate). The Consumer Financial Protection Agency of the United States has analyzed that approximately 8% of student loan holders have defaulted on other loans.
The high oil prices are also a concern. The average selling price of gasoline per gallon reached $3.8 in August, an increase of 20% from the end of 2022. The United States is a country on wheels, and commuting to school is inseparable from cars. Consumers may reduce their dining and travel plans to save on fuel consumption.
More and more people are becoming cautious about the year-end business war that predicts the future of personal consumption in the United States. MasterCard, a US card issuer, predicts that total retail sales in the US will increase by 3.7% from early November to late December compared to the same period last year, almost halving from 7.6% the previous year.
The stock market is also not optimistic. The stock price of sports goods giant Nike hit a new low for the year on the 26th, and has shrunk by 23% compared to the end of last year. Investors are starting to sell stocks of sports goods and clothing companies out of concerns that consumers may be living within their means.
However, there are still a few views predicting a sharp decline in consumption, as real income, excluding price fluctuations, is still increasing. Real wages increased by 2% year-on-year in the second quarter.
The household balance sheet is also at a healthy level. The proportion of money used to repay principal and interest in household disposable income is still low. This is because although debt is increasing, income is also increasing. Homebuyers in the United States tend to choose fixed rate loans, so borrowers have a certain tolerance for interest rate hikes.
Rising interest rates will bring more benefits to the wealthy in terms of investment and also support consumption. According to data from asset management company Fidelity Investment, the number of 401K pension account holders with account balances exceeding $1 million increased by 10% from the end of March to the end of June this year. The high interest rate increases the interest income of large transferable certificates of deposit and short-term treasury bond.
However, Federal Reserve Chairman Powell pointed out at a press conference on the 20th that household savings, which support the US economy, have "significantly decreased". Against the backdrop of a slowdown in the European economy, if the US economy cannot achieve a soft landing as previously envisioned, it will inevitably become a major cause of financial market volatility.