Most economic measures continue to paint an upbeat profile for the US, but yesterday’s September report on consumer spending and income hints at the possibility that softer growth is approaching. There’s still no clear sign of rising recession risk on the immediate horizon, but it’s reasonable to wonder if the surge in economic activity following Donald Trump’s election two years ago is now in the process of reversing and giving way to a lesser rate of expansion.
One school of thought for explaining a possible slowdown: the previous round of tax cuts that juiced the economy are beginning to fade. Add to that the ongoing risk of the current trade war between the US and China, which could get worse, and the Federal Reserve’s plans to keep raising interest rates and it’s clear that the macro headwinds are blowing harder.
The stock market is certainly discounting a higher risk of trouble these days. The S&P 500 Index continued to fall in Monday’s trading, slumping to the lowest close since early May.
“Changes in stock prices can have an adverse effect on spending, at least in the short-term,” advised Joseph LaVorgna, chief economist for the Americas at Natixis, in a research note last week. “If the recent market swoon persists, consumer spending could slow over the next few months with negative effects on retail sales and GDP growth.”
Slightly slower growth is on display in the latest release for personal spending and income. The year-over-year changes on both counts eased in September, according to the Bureau of Economic Analysis. Personal consumption expenditures downshifted to a 5.0% annual pace from 5.5% in the previous month while disposable personal income grew 4.9% vs. the year-earlier level, the second month of slightly softer increases. It could be noise, of course, but for the moment it’s reasonable to consider the possibility that the recent revival in the consumer sector has peaked.
