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Tough times ahead for US consumers – strategist

Decreasing spending power is signaling trouble for the economy, according to Chris Watling

American consumers are facing challenging times, with household spending expected to cool further, Chris Watling, the chief executive of the financial advisory firm Longview Economics, has warned.

In an interview with CNBC this week, the strategist cited the latest economic indicators showing consumers have been quickly running out of excess cash while household savings have been under growing pressure.

“I think the US consumer is walking towards a cliff, basically,” Watling said. “Of course, retail sales have been quite strong for the last few months, and everyone gets quite excited about that, but, actually, if you look at what’s going on, the household savings ratio has been run down, and, in fact, real income growth has been negative for three months.” 

Watling pointed out that the consumer and the labor market are under a lot of pressure at the margins. “We had a good payrolls month, but if you look at a lot of the indicators of where the labor market is likely to go, a lot of them are fraying at the edges,” he said.

The strategist added that a substantial labor market downturn could invoke a recession in the country. “We’re going to get to the point in the next few months. I think the US is in for a tough time,” Watling cautioned.

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According to a recent study by the University of Michigan, US consumer sentiment deteriorated in October in a third straight monthly decline, with households expecting higher inflation over the next year. Moody’s Investors Service said in a report last month inflation and a deteriorating outlook for the US economy have been weighing on consumers. Moody’s pointed out that individual spending fuels about two-thirds of the US economy, and the vast majority of Americans now have less savings than they had before the pandemic after adjusting for inflation.

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