Some Consumer Cracks
🚀 The quick version: Consumer spending represents about 70% of the overall U.S. economy, so as the saying goes, “when the consumer sneezes, the economy catches a cold.” Some recent data points along these lines caught our attention:
Pandemic savings are dwindling. The San Fransisco Federal Reserve recently released a study tracking household savings. What they found was that through the pandemic, American households had accumulated excess savings (defined as savings above historical normal times) of $2.1 Trillion (mainly through spending less coupled with getting various government supplements). As of June 2023 excess savings was down to $190 billion and they forecast it will run out completely in the third quarter of this year (so now basically). Having no excess savings left will unquestionably hurt spending, a big safety net the economy has been using to grow.
More pandemic programs are ending soon. Over the next few months we will also see several more pandemic era programs come to an end. The first is the student loan forbearance which will end officially in October (interest will start accruing again in September - see below on how to sign up for the new income based repayment plan) which experts predict will lesson consumer spending by almost $10 billion per month. The second is the ending of childcare stabilization relief (also going away in October) which ends $24 billion in federal grants and is going to raise costs for many families.
Prices still remain elevated. While we have made progress on inflation, big ticket items like homes continue to be unaffordable for most consumers with mortgage rates hitting levels this past week not seen since the early 2000s and some saying we could hit 8% soon. Car prices also continue to remain elevated (there is now only one new car model selling for under $20k) and gas prices are approaching one year highs.
Macy’s and Nordstrom ring alarm bells. Lastly, retailers Macy’s and Nordstrom reported earnings this past week and both said they were cautious on the outlook for the consumer. Perhaps more importantly, both companies also said they were seeing deteriorating credit quality with more delinquencies on their branded credit cards (translation: more people are now not paying their bills). To our knowledge, these are the first such companies to sound this alarm.
👪 How it affects your family: We don’t want the above to make it sound like the we think the U.S. economy is about to tip into recession (we don’t), but we do think that some of theses headwinds present risks later this year and into 2024.
On the positive side, our view is that mortgage rates are more likely to go lower from here vs. much higher (tip: watch the 10 year U.S. Treasury yield as a good indication of where mortgage rates are going. Mortgage rates tend to move in the same direction on a lagged basis).
We are also not convinced that the Macy’s and Nordstrom cautious view of the consumer should be extrapolated to the whole economy just yet (let’s wait until we see more companies talk in a similar fashion).
However, as all this relates to our families, now is the time to really think about how to maximize your earning potential (more on that below), plan for what might be coming in 2024, and take the easy wins when you can get them. Here are some new guides to help:
Make money with your money (safely). We like to focus on helping families earn more (vs. spend less), and one advantage to high interest rates right now is it allows for some safe places to park your short term cash just sitting in a checking account. We came up with 5 suggestions where you can park short term cash and earn around 5% (or more) to help boost your income stream today.
Plan ahead. With some signs above pointing to a possibly different 2024 economically, there is no better time than now to create an accurate family budget. That’s why we created a free monthly template that can help!
Easy wins. Planning on a night out with the kids? It’s a small win but look for places that offer free kids meals. To help, we dug around and found a short list of restaurant chains that offer free kid’s meals every day of the week.
