Your Evening Briefing: Investors Say US Consumption Spending Will Shrink

While many investors and economists have crossed over into the sunny lands of soft landing, the members of Team Recession are legion, and they’re still betting on a storm. One new reason for the pessimism may be that, according to Bloomberg’s latest Markets Live Pulse survey, the US consumer is about to crack. More than half of 526 respondents said that personal consumption—the most important driver of US economic growth—will shrink in early 2024, which would be the first quarterly decline since the onset of the pandemic. Another 21% said the reversal will happen even sooner, in the last quarter of this year, as high borrowing costs eat into household budgets. The finding, of course, is at odds with optimism that’s permeated equity markets for most of the summer as cooling inflation and low unemployment make a hero out of Fed Chair Jerome Powell. Should the US economy stop growing though—a scenario that’s likely if consumer spending contracts significantly—it could mean more downside for stocks, which have already slipped from late-July highs. US consumers’ inflation expectations were mostly stable in August, but households grew more concerned about their finances and more pessimistic about the job market, according to a Federal Reserve Bank of New York survey.

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