July 22 - 25, 2024
Commentary
Consumers Are Doing Great, But Your Highest Spending Cohort Might Not Be...
- by Corinne Casagrande , April 3, 2024
Consumers are generally feeling better about their personal finances than they have in over two years. The consumer sentiment index, measured by the University of Michigan, rose to the highest level since mid-2021 in March. Most people are feeling good about stock market gains and easing their inflation expectations. The Federal Reserve has confirmed that it will keep the interest rates low and support the economic recovery with its monetary policy.
The job market is strong. The unemployment rate rose slightly in February to 3.9%, still very low by historical standards. Immigration has powered labor supply, which helps bring down inflation.
Discretionary spend is flush, except for some consumers with(out) cushy jobs
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Despite all this good news, the job market is showing signs of softening. People are not finding work as quickly. February’s payroll data showed some of the increase in the unemployment rate was due to people entering the labor force and not immediately finding work.
According to Indeed, a job search website, overall job postings did not experience their typical January bounce in 2024, ending January down 5% from pre-holiday, Dec. 1 levels. The number of people searching for a job in January 2024 was higher than in the pre-holiday period. This points to a cooling job market with lower demand in industries where you need a resume.
Some of the states with the highest unemployment rates, such as California, Nevada, Arizona, and Wisconsin, indicate that there are pockets of weakness in the labor market that are not captured by the national figures. These states have been hit hard by layoffs in the tech sector, which lead layoffs across industries in 2023 that haven’t stopped yet in 2024. According to Layoffs.fyi, a website that tracks tech layoffs, the tech sector shed 168,032 jobs in 2023, and over 56,858 tech employees have been let go from tech companies so far in 2024.
There are many reasons for tech layoffs, from unsustainable business models in the ZIRP era to pandemic over-hiring. However, the continued push for labor efficiency into 2024 makes one wonder if the tech sector sees something about AI productivity and human labor that other sectors haven’t caught on to yet.
Are tech layoffs a warning bell for other professional industries?
Higher income workers have more anxiety about their job security, with 17% of U.S. workers making over $100K expecting a loss of income over the next month, per Axios. This concern is three points higher than workers making between $50K-$100K.
These workers, who typically earn high salaries and have high levels of education, may face difficulties in finding new jobs or switching careers, and may have to reduce their discretionary spending, which could affect the sectors like travel, entertainment, and retail.
When marketers have a product or a service they want to sell to millions of Americans, starting with affluent cities on each coast is usually a pretty good bet. People with more money buy more things. The pocket of job insecurity in the professional sector is one to watch, as both a high lifetime value consumer cohort and as a warning sign for a softening job market.
3 comments about "Consumers Are Doing Great, But Your Highest Spending Cohort Might Not Be...".
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How are "consumers doing great" with every government entity economic indicator showing softer consumer spending and disposable income growth? Barely hovering at 1% with disposable income decreasing with high interest rates and wages that have not kept up with inflation. Middle and especially lower-income HHLDs being hit the hardest. 16-24 year olds unemployment is more than double the national average. Average household debt has increased 5% and credit card debt has increased over 16% over the last couple of years. We are seeing record numbers of people just dropping out of the job market.
There seems to be this constant reporting of good news when it comes to consumers and the media and administration telling consumers that things are better than their empty wallets are telling them.
Great question- YoY or MoM growth rates can be very deceptive. The cash injection the lower-income households got in 2020-2022 from stimulus and tax refunds was unprecedented and lead to huge spikes in discretionary spend growth. The hiatus on student loan payments really changed consumers debt payoff schedules during this time. Now the increases are normalizing, and looking much softer compared to the previous years which.
Those years also saw hot inflation, and there was a period in 2022 when wages didn't keep pace, however, wages have kept pace and even exceeded inflation in 2023. There's nothing that makes consumers feel worse than inflation, and it's made confidence and other sentiment-based metrics bifurcate from the actual numbers.
Corrine - do you have a source for this information? Inflation has increased by double digits since 2021 - groceries for HHLD staples like eggs, meat, and fruits and vegetables have seen increases upwards of 30%. Rents, along with utilities have increased 20% as well. These prices are not coming down.
Seems like the government and the press want to look at monthly inflation to say how low it has become while ignoring how staggering it was for 2+ years.
And according to the Bureau of Economic Analysis (a government entity), a good percent of wage growth has come from government social benefits - not by the private sector - and this just drives up the national debt.
These numbers and stats being thrown out are way out of context and consumers are getting fed up with the media and politicians telling them that their lives are better than they think they are.