All Hail the Consumer! Can U.S. Shoppers Continue to Carry the Economy?

Shoppers Entering Store

All Hail the Consumer! Can U.S. Shoppers Continue to Carry the Economy?

Shoppers Entering StoreBack in August, a chief investment strategist called the U.S. consumer “Atlas” for its role in holding up the economy. Atlas, you’ll recall, was a titan from Greek mythology who was burdened with carrying the heavens upon his shoulders as punishment from Zeus for losing a battle with the Olympian Gods.

Indeed, the U.S. consumer has been a titan in its own right. ‘Shop until you drop’ Americans have almost single-handedly shouldered economic growth and have remained unflinching and unflappable in their spend trends despite recession talk, trade pressures, global weakness, central bank easing, and a host of political risks. Consumer spending makes up 70% of U.S. GDP and when Americans splurge on durable, non-durable and luxury goods — it not only feeds into supply and demand metrics, but it’s a sign of burgeoning consumer confidence.

Real Personal Consumption ExpendituresAccording to the Bureau of Economic Analysis, personal income in the United Sates increased $73.5 billion (0.4 percent) in August. Disposable personal income (DPI) increased $77.7 billion (0.5 percent), and personal consumption expenditures (PCE) increased $20.1 billion (0.1 percent). The latter data point has been on an upward trajectory throughout the year.

Bloomberg also recently called free-wheeling, free-spending Americans, “The Best Hope Against Recession.” They cited vigorous consumption levels, a consumer confidence rate at near historic highs, and a 2019 holiday sales season that is expected to be beat the running five-year average.

There are signs that the titan is tiring, however. U.S. Retail sales dropped in September for the first time in seven months. Americans are also starting to worry about the interminable trade war with China and wonder whether the billions in tit-for-tat tariffs will show up at the cash register or in their online shopping cart. There are also concerns about Fed policy, the coming election, and a new wave of wild days on Wall Street.

In addition, several Bank of America Merrill Lynch analysts identified three growing risks that could spook consumers and derail America’s record-setting expansion. The first is a massive spike in borrowing. Earlier in the year, outstanding consumer debt surpassed $4 trillion, an all-time high. And, more Americans are holding more credit card debt than at any other time in U.S. history and delinquencies are climbing.

Secondly, consumer confidence has dipped. In September it fell by the highest level in 9 months amid trade worries and a series of grim manufacturing statistics. Consumer confidence is a leading indicator which helps predict consumer spending.  When confidence wanes, folks get nervous and are less likely to part with money. If spending slows, it would be the death knell of the current economic expansion.

Lastly, job growth came in weaker than expected last month and wage growth also decelerated. With unemployment at historic lows, logic suggests that employers would need to up the ante in order to attract and retain workers. But that’s not happening and no one really knows why. The manufacturing and retail sectors were particularly hard hit and both are considered the life blood of a growing economy.

Consumer anxiety and economic uncertainty almost always trigger a spending pullback. If this occurs in the waning weeks of 2019 or the early months of 2020, the fear, uncertainty, and panic would weigh on capital investment, dampen retail sales, squash manufacturing output, and rattle Wall Street — causing the economic engine to gasp, sputter and seize up.

Do you have a plan for that? Diversifying your portfolio with physical gold is one of the most effective ways to protect its value. Gold is an inflation, recession and crisis hedge — and precisely where savvy investors go when American consumers start saying no.

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