Signs of rising consumer stress in the US are prompting some fund managers to becomes more cautious in their outlooks, even as the broad stock market continues to rally.
While unemployment remains near historic lows, the Federal Reserve's inflation-fighting interest rate rises are hurting household budgets.
Consumer confidence fell more than expected in August, while delinquency rates among credit cards issued by smaller banks are the highest on record, according to data from the Apollo Group.
Department store Nordstrom said last week that delinquencies on its store cards are now higher than pre-pandemic levels. Rival Macy's said it expects late payments to reduce credit-card revenue by 41 per cent from the previous quarter.
Payments on approximately $1.1 trillion of federal student loans will resume in October, potentially setting consumers up for a “payment shock” of $500 or more each month, according to a study by TransUnion.
“The US consumer is on thin ice coming into the final stretch of 2023,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management.
She is more bullish on bonds and defensive sectors like health care ahead of the fourth-quarter holiday shopping season.
The US economy added 187,000 non-farm jobs in August, slightly above expectations, while the unemployment rate rose to 3.8 per cent, the Bureau of Labour Statistics said on Friday.
The government significantly lowered its previously reported estimates for job growth for June and July.
Further declines in the labour market are likely to act as a double-edged sword for investors, relieving some inflation pressures while weighing on consumer spending.
Overall consumer spending rose slightly more than expected in August, while the savings rate fell to its lowest since November 2022, the Commerce Department said on Thursday.
Consumers will “very soon” exhaust their excess savings built up during the pandemic, said Jake Jolly, senior investment strategist at BNY Mellon Investment Management, who is underweight equities and expects that the US economy is on the path to recession.
“It does beg the question of how long consumer spending can surprise to the upside,” he said, adding that bonds continue to look more appealing, given a rise in yields that has pushed the 10-year Treasury yield above 4 per cent.
Overall, consumer spending growth will fall from 2.3 per cent in 2023 to 0.9 per cent in 2024, said Gregory Daco, chief economist at accounting company Ernst & Young, due to higher interest charges, fewer available savings and student loan payments. He said the economy will post below-trend growth for several quarters.
Investors will receive an updated view of consumer credit usage and a reading of the ISM services sector, which accounts for two-thirds of the economy, next week.
Betting against the consumer spending has so far been a losing wager. The US economy continues to grow at what the Atlanta Fed's GDPNow estimates is an annualised 5.9 per cent rate in the third quarter.
Interest rates are likely to fall over the fourth quarter of the year and into 2024 as inflation fears ebb, providing some cushion for consumers, said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management, who expects investors to buy into any dips in consumer stocks.
“The US consumer, and therefore the economy, should remain fairly resilient well into 2024,” he said.
The consumer discretionary sector, which includes stocks like Amazon.com, Royal Caribbean Cruises and Chipotle Mexican Grill, is up nearly 34 per cent year-to-date, nearly double the gain of the S&P 500 index as a whole.
Yet the sector has lagged lately, gaining less than 1 per cent since July 1 while the S&P 500 is up nearly 2 per cent over the same time.
Even if consumer spending does fall significantly, the strong rally in the sector is likely to wane as the tech-driven broader market slows over the fourth quarter, said Sandy Villere, a portfolio manager at Villere & Co.
As a result, Villere is building up his positions in defensive sectors such as healthcare that have not lagged.
“We think it's premature to move away from the consumer now, but we can see a recession hitting in the first quarter as the Fed's rate hikes start to kick in,” he said.
Global state-owned investor ranking by size
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1.
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United States
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China
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UAE
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Japan
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5
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Norway
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6.
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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Biography
Favourite book: Zen and the Art of Motorcycle Maintenance
Holiday choice: Anything Disney-related
Proudest achievement: Receiving a presidential award for foreign services.
Family: Wife and three children.
Like motto: You always get what you ask for, the universe listens.
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Karwaan
Producer: Ronnie Screwvala
Director: Akarsh Khurana
Starring: Irrfan Khan, Dulquer Salmaan, Mithila Palkar
Rating: 4/5
UAE currency: the story behind the money in your pockets
The Specs:
The Specs:
Engine: 2.9-litre, V6 twin-turbo
Transmission: 8-speed automatic
Power: 444bhp
Torque: 600Nm
Price: AED 356,580 incl VAT
On sale: now.
Key facilities
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- Specialist robotics and science laboratories
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- Disruption Lab and Research Centre for developing entrepreneurial skills
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
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- Critically assess whether a project’s promises or returns seem too good to be true.
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Results
Men's finals
45kg:Duc Le Hoang (VIE) beat Zolfi Amirhossein (IRI) points 29-28. 48kg: Naruephon Chittra (THA) beat Joseph Vanlalhruaia (IND) TKO round 2.
51kg: Sakchai Chamchit (THA) beat Salam Al Suwaid (IRQ) TKO round 1. 54kg: Veerasak Senanue (THA) beat Huynh Hoang Phi (VIE) 30-25.
57kg: Almaz Sarsembekov (KAZ) beat Tak Chuen Suen (MAC) RSC round 3. 60kg: Yerkanat Ospan (KAZ) beat Ibrahim Bilal (UAE) 30-27.
63.5kg: Abil Galiyev (KAZ) beat Nouredine Samir (UAE) 29-28. 67kg: Narin Wonglakhon (THA) beat Mohammed Mardi (UAE) 29-28.
71kg: Amine El Moatassime (UAE) w/o Shaker Al Tekreeti (IRQ). 75kg: Youssef Abboud (LBN) w/o Ayoob Saki (IRI).
81kg: Ilyass Habibali (UAE) beat Khaled Tarraf (LBN) 29-28. 86kg: Ali Takaloo (IRI) beat Emil Umayev (KAZ) 30-27.
91kg: Hamid Reza Kordabadi (IRI) beat Mohamad Osaily (LBN) RSC round 1. 91-plus kg: Mohammadrezapoor Shirmohammad (IRI) beat Abdulla Hasan (IRQ) 30-27.
Women's finals
45kg: Somruethai Siripathum (THA) beat Ha Huu Huynh (VIE) 30-27. 48kg: Thanawan Thongduang (THA) beat Colleen Saddi (PHI) 30-27.
51kg: Wansawang Srila Or (THA) beat Thuy Phuong Trieu (VIE) 29-28. 54kg: Ruchira Wongsriwo (THA) beat Zeinab Khatoun (LBN) 30-26.
57kg: Sara Idriss (LBN) beat Zahra Nasiri Bargh (IRI) 30-27. 60kg: Kaewrudee Kamtakrapoom (THA) beat Sedigheh Hajivand (IRI) TKO round 2.
63.5kg: Nadiya Moghaddam (IRI) w/o Reem Al Issa (JOR).
RESULT
Huddersfield Town 2 Manchester United 1
Huddersfield: Mooy (28'), Depoitre (33')
Manchester United: Rashford (78')
Man of the Match: Aaron Mooy (Huddersfield Town)
Profile Idealz
Company: Idealz
Founded: January 2018
Based: Dubai
Sector: E-commerce
Size: (employees): 22
Investors: Co-founders and Venture Partners (9 per cent)
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
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SPECS
%3Cp%3E%3Cstrong%3EEngine%3C%2Fstrong%3E%3A%202-litre%20direct%20injection%20turbo%20%0D%3Cbr%3E%3Cstrong%3ETransmission%3C%2Fstrong%3E%3A%207-speed%20automatic%20%0D%3Cbr%3E%3Cstrong%3EPower%3C%2Fstrong%3E%3A%20261hp%20%0D%3Cbr%3E%3Cstrong%3ETorque%3C%2Fstrong%3E%3A%20400Nm%20%0D%3Cbr%3E%3Cstrong%3EPrice%3C%2Fstrong%3E%3A%20From%20Dh134%2C999%26nbsp%3B%3C%2Fp%3E%0A
Killing of Qassem Suleimani
Killing of Qassem Suleimani
Frankenstein in Baghdad
Ahmed Saadawi
Penguin Press
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
WOMAN AND CHILD
Director: Saeed Roustaee
Starring: Parinaz Izadyar, Payman Maadi
Rating: 4/5
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Which products are to be taxed?
To be taxed:
Flavoured water, long-life fruit juice concentrates, pre-packaged sweetened coffee drinks fall under the ‘sweetened drink’ category
Not taxed
Freshly squeezed fruit juices, ground coffee beans, tea leaves and pre-prepared flavoured milkshakes do not come under the ‘sweetened drink’ band.
Products excluded from the ‘sweetened drink’ category would contain at least 75 per cent milk in a ready-to-drink form or as a milk substitute, baby formula, follow-up formula or baby food, beverages consumed for medicinal use and special dietary needs determined as per GCC Standardisation Organisation rules
