By
Derek Hamilton
June 04, 2024
The US economy has grown faster than expected over the past year. We have pointed out that government spending has played a key role in that outperformance. At the same time, consumer spending continues to grow at a solid pace. We believe the current rate of spending is unlikely to continue.
The chart below illustrates that consumer spending has been growing much faster than disposable income over the past year. This implies consumers are supplementing their income through other means, such as increased borrowing and reduced monthly savings, both of which are becoming increasingly apparent in the data. Consumer net worth has been rising, but this disproportionately accrues to higher-income cohorts. Therefore, we expect the dispersion between high-income and low-income spending to continue.
In our view, the gap between income and spending appears unsustainable. Could income growth increase to support spending? We believe this would have to come in the form of an acceleration in employment growth or another round of fiscal stimulus. While possible, we believe this is unlikely. Looking ahead, we believe consumer spending is set to slow, even if the US avoids a recession.
US real disposable personal income and real consumer spending
year-over-year % change
Sources: Macquarie, Macrobond, U.S. Bureau of Economic Analysis (BEA)
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