Slow Motion Consumer Slowdown

Apollo Chief Economist

With Walmart’s earnings out, the debate about the health of the US consumer is heating up again.

Wage growth is high, and job creation is strong, but inflation is starting to have a negative impact and trigger substitutions and changing consumption patterns.

From a rates and Fed perspective, what matters is growth in overall consumer spending. The top 60% of incomes account for almost 80% of total consumer spending, and with significant savings left among middle- and high-income households, it will take some time before overall consumer spending starts to slow down, see charts below.

The bottom line is that the Fed will have to raise rates more than the market expects to successfully cool the economy down. And faster Fed hikes increase the risk of a harder landing and deeper yield curve inversion.

Chart showing the top 60% of incomes account for almost 80% of total consumer spending
Source: Consumer Expenditure Survey, Haver Analytics, Apollo Chief Economist
Chart showing middle- and high-income households have significant savings
Source: FRB, Haver Analytics, Apollo Chief Economist

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