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The U.S. Consumer's Ability To Shrug Off Inflation Is Coming To An End

us consumer's inflation
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EDITOR'S NOTE: It’s widely assumed that the broader market leads the economy. What’s also widely known but harder to identify is when the market is running on fumes of either optimism or fear. So, corporate earnings are topping analyst expectations and consumer spending is trending up. Obviously, Americans must be doing well financially to intensify spending or load up on debt amid skyrocketing prices; US consumers are willing to level up in the inflation game. Such optimism is evident in the markets, which are subject to furious recovery rallies between the drops. Are investors confident enough to buy the dip? How can we tell if all the spending driving earnings and the broader market might be running on fumes? The Household Pulse Survey, cited in the Axios article below, reveals a fascinating story of what’s really happening behind the scenes. There’s a time limit to this exuberance. But it appears that many investors aren’t yet getting the message—a trait that distinguishes the “smart money” from the herd.

New data gathered from America's households raises some red flags as to just how well people are really dealing with inflation, Axios' Pete Gannon writes.

Why it matters: Positive corporate earnings and consumer spending data have prompted many to conclude that U.S. consumers are weathering skyrocketing prices.

  • Yes, but: A recent survey by the Census Bureau raises questions as to how sustainable that spending is, as the pandemic savings and other sources of cash for Americans run out.

State of play: The Household Pulse Survey, covering March 30 to April 11, showed a 32% increase in people relying on credit cards and loans to meet their spending needs.

  • By contrast, the amount of people covering their spending from regular income sources grew at a much slower rate, up 5% from last year.

Meanwhile: More than 1 in 10 adults reported tapping loans from friends or family to meet spending needs, a 34% increase from a year ago.

  • This trend has disproportionately affected Black Americans, Bloomberg noted today, with 1 in 6 now relying on friends and family, compared to 1 in 9 last year.

Quick take: The year-over-year increases point to a collision between inflation and a millennial generation weighed down by larger student loans and the long-term effects of suffering through a poor job market for a significant portion of their careers.

The bottom line: The U.S. consumer's ability to shrug off inflation has a shelf life — and we may be nearing the end of it.

Originally published by Axios.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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