• Posted on May 10, 2024
  • by MI2 Research

“… masking a complete picture of the financial health of American households”

In the second half of last year, as we continued to ponder the ever-impressive strength of the US consumer, we highlighted research on the subject of “excess” saving (which still seems a misnomer), noting JPM’s analysis that saw the consumer that had exhausted the various stimmy payments. Soon after, we discussed research from the San Francisco Fed that argued “a larger fraction of aggregate savings remains in the economy than previously expected”, thanks in part to “a comprehensive data revision”. The piece concluded that those savings would last until “the first half of 2024”. Well, while tomorrow may never truly arrive if free beer is involved (a medical concept?!), the future is now, and the SF Fed has bad news: “Pandemic Savings Are Gone”. As ever with economic research, this comes with a list of caveats, the jist of which are captured in the note accompanying the Fed’s chart below, i.e. savings are gone, relatively speaking.

If you take a look at the savings data, it’s interesting that while Gross Private Savings are still climbing, net savings (adjusting for household borrowing) is coming down. So, the less well-off are borrowing even while total saving increases. How often is more borrowing associated with an imminent contraction? (That said, savings are slightly below 2019 levels when adjusted for inflation).

However, it’s a new age with a new mantra: “we will know them by their works”. We’re all empiricists now. In that regard, the news isn’t good. Darden restaurants noted in their latest quarterly report that “Households under $75,000 – and especially less than $50,000 – cut back”. McDonald’s noticed a similar trend, saying that “broad based consumer pressures persist”. And the data from Buy-Now-Pay-Later companies is rather dire. In an article on the subject, which noted that “cracks are starting to form” in consumer spending, it was reported that “43% of those who owe money to BNPL services said they were behind on payments, while 28% said they were delinquent on other debt because of spending on the platforms.” Hopefully they aren’t running big balances on their Macy’s cards at 32%!

The recent readings from the Conference Board were a similarly dour read, with consumers “more pessimistic about future business conditions, jobs, and income” as “expectations for the next six months slipped to the lowest level since July 2022”.

And yet, should we look at what they say or what they do? The Conference Board’s reading of respondents planning a foreign vacation remains near all-time highs, Ferrari’s adjusted earnings were up 13% YoY, and the SF Fed noted that “many households saw notable gains in their equity and other asset holdings over the past year” (applicable only to those who have ‘equity and other asset holdings’). Perhaps even the CEOs might notice their portfolios are doing well.

Given all the above, one would be forgiven for wondering if there may be a difference in the pain being felt across the different socioeconomic levels. Echoes of the K-shaped recovery? It’s all relative.

P.S. Consumers may not be the only ones noticing a difference between the little and big fish. Large caps are doing fine, while small and mid-caps may be faltering…