Is the strength of the US consumer overrated?

The US consumer, which represents a bigger share of global GDP than China’s economy, has been the main driver of US GDP growth in recent quarters. Spurred by job and wage growth, consumer spending has been robust. And from a top-down perspective, there are few signs that this is about to change. However, some underlying factors suggest that weaknesses in US consumer spending are starting to appear.

For example, in recent weeks, initial jobless claims started to rise gradually to levels that could raise the question if we have seen the bottom in unemployment. Last week, however, initial jobless claims fell from 228K to 213K, and also lower than expected making it difficult to conclude initial jobless claims are on an ascending path. Yet it is something to keep an eye on.

In addition,  the average work week for production workers has declined to its lowest level in more than eight years. With a tight labor market, companies will – where possible – refrain from letting people go, but opt for shorter hours when business slows. Another off-the-radar development is the ongoing competition faced by brick-and-mortar retailers from online retailers. In fact, construction spending in the retail sector is down a massive 50% year-on-year. These developments could lead to an increase in shop closings, especially after the holidays.

 

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