US Consumer Outlook: Slower for Longer

Apollo Chief Economist

Our outlook for the US consumer is available here, there are two key conclusions:

1) The data for both retail sales and personal consumption expenditures for October have been weaker than expected, and the market is likely underestimating the negative impact of student loan payments resuming in October, see the first two charts below.

2) Since the Fed started raising interest rates, nominal consumer spending growth has continued to slow, see the third, fourth, and fifth charts. With the Fed in the process of getting inflation under control and job growth slowing, we should continue to see a steady slowdown in nominal growth rates in consumer spending and, therefore, in nominal GDP. The question for markets is whether we can get a soft landing in both nominal and real GDP. Nominal GDP will come down as inflation comes down, but the risk remains that real GDP (i.e., volumes) will come down faster than the consensus currently expects.

October data shows weakness in retail sales after student loan payments restarted
Source: Census Bureau, Haver Analytics, Apollo Chief Economist
Consumer spending slowed down in October after student loan payments restarted
Source: BEA, Haver Analytics, Apollo Chief Economist
Retail sales slowing down since the Fed started hiking rates
Source: Census Bureau, Haver Analytics, Apollo Chief Economist
Personal consumer spending has been slowing down since the Fed started hiking
Source: BEA, Haver Analytics, Apollo Chief Economist
The pace of job growth continues to slow
Source: BLS, Haver Analytics, Apollo Chief Economist

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