News and events

05.21.2024

THE RISKS OF IMPERFECT COMMUTATIVE PROPERTY

For the first time since reopening, we introduce a stream of cautiousness into our projected growth baseline for the US economy.

​The post pandemic miracle. Although inflation and interest rates skyrocketed, the US economy has comfortably expanded above potential since reopening (Figure 1). Huge savings built during the lockdown and ultra expansive fiscal policy have been key in supporting private consumption against the headwinds of fast tightening financial conditions (Figure 2).


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All good things come to an end. As the crisis waned and consumers had their spending revenge, excess savings have been spent. Although economists disagree on whether households have drained all their excess savings, and they disagree on which income group is more likely to have done so, it’s undeniable that even under the most optimistic assumption, the amount of unspent dollars is largely less supportive than before. (Figure 3). 

An imperfect commutative property. For the first time since reopening, we introduce a stream of cautiousness into our baseline for private consumption. Compared to the structure that featured in our long held outright constructive central case, we now think that the income forces underpinning private consumption are changing for the worst. 

The spending party might not be just over yet. We remain of the view that household spending will continue to represent the main growth engine in the US this year. According to our estimates, excess savings won’t be depleted before Q1 25. This should continue to support goods and services spending in H2 24.  


 




But the party may not be that much fun anymore. We expect real disposable income to step in as a key supporting force for household spending. However, we don’t expect it to provide a perfect substitute for households, resulting in less buoyant support to consumer spending, all else being equal. 
While we continue to expect the US economy to remain on a very soft landing, the projected future poorer quality of the income addends fitting into our consumer spending equation suggests that it may be entering the last stretch of its post-pandemic economic cycle. 







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CRUISE CONTROL

Incoming data suggest that the US economy remains on a soft-landing path driven by deteriorating quality of spending.
07.26.2024

Safe moderation

In the US, the cautionary approach introduced into our projected growth baseline has not yet been quantitatively incorporated into our forecast, but evidence of weakening consumer spending momentum is accumulating.