Summary: The predictions for a recession in 2023 have been weakened by recent second-quarter profit reports from companies such as Amazon, Walmart, and Home Depot, which all beat profit forecasts. Consumer statistics, including deposit levels at Bank of America and GM car sales trends, indicate that consumers still have significant savings and that sectors like automobiles and services are picking up consumer spending. Consumer debt levels are manageable, and demand for goods, particularly cars, remains strong. Though inflation has negatively impacted real incomes, the gap is narrowing as wages rise faster than inflation.
While there were predictions of a recession in 2023 due to a lack of consumer spending power following the post-pandemic spending spree, recent profit reports from major companies like Amazon, Walmart, and Home Depot suggest a different economic outlook. The strong earnings from these companies, along with consumer statistics, including deposit levels at Bank of America and GM car sales trends, suggest that consumers still have significant savings and that consumer spending is being supported by sectors like automobiles and services. Despite weak growth in furniture, appliances, and apparel sales since the COVID-19 boom in goods purchasing, the overall consumer economy remains resilient.
Furthermore, consumers are not overly burdened by debt. While consumer credit card balances have increased, this does not indicate distress, as consumers are choosing to spend rather than being forced to do so. Consumer loan delinquency rates remain low, and mortgage credit quality at JPMorgan is solid, with home loan chargeoffs not currently a concern. The percentage of household income required to service debt is similar to pre-pandemic levels, indicating that consumers are managing their debt effectively.
Demand for goods continues to be strong, particularly in the auto industry. While spending on furniture, electronics, and apparel has declined, car companies like GM have reported a significant increase in sales. The Bureau of Economic Analysis shows that consumer spending on new vehicles has risen, reflecting pent-up demand. However, the impact of interest rates on the housing sector remains uncertain, as existing home sales have declined and residential investment has had a slower growth rate compared to previous years.
Finally, inflation has impacted real incomes, but the gap is narrowing as wage increases outpace inflation. Real incomes are currently 2.2% higher than a year earlier, and inflation is now at around 3%. While a government shutdown in October could have negative economic consequences, the overall consumer-led slowdown argument appears to be weakening based on recent data and financial reports.