Consumers Begin Scaling Back on Spending After Strong Years for US Economy — With the Fate of Earnings and the Economy At Stake - The Average Joe


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    Consumers Begin Scaling Back on Spending After Strong Years for US Economy — With the Fate of Earnings and the Economy At Stake

    Noah Weidner

    May 1, 2024

    Amidst the pandemic, the US staged a remarkable recovery, quickly becoming the world’s strongest economy. However, even the US is susceptible to the laws of physics: what goes up must come down.

    Holding on for dear life: After remaining hardy in the face of stagflation, some of America’s largest companies are warning investors that consumers are tightening their economic belts — and finally pulling back on spending after a banner few years for the US economy. This earnings season, companies have reported weaker results — and issued subdued forecasts for the coming quarter. This has reignited recession angsts on Wall Street — leading to a 3.6% decline in the S&P 500 this month.

    • Food chains like McDonald’s ($MCD), Yum Brands ($YUM), and Starbucks ($SBUX) are signaling that economic pressures are weighing on consumers, translating to weaker spending.
    • Industrial giants such as 3M ($MMM) are noting “softness in consumer discretionary spend,” while Newell Brands ($NWL) singled out inflation as a reason for weaker guidance (CNBC).

    Challenges for the Fed

    Weaker consumer spending not only impacts corporations but also the Federal Reserve — which has already had to digest weaker-than-expected GDP growth and an acceleration in high-profile layoffs across some sectors. And making matters worse, American consumer confidence fell to its lowest point since Jul. 2022 (back then, inflation was over 8%, the worst in four decades). Still, the Fed isn’t blinking…

    • After the Federal Open Market Committee (FOMC) meeting yesterday, the Fed kept interest rates at a 23-year high — with the target rate glued at 5.25-5.50%.
    • The Fed emphasized that rates would remain high as long as inflation persists, suggesting they may stay elevated through 2024.

    Renewed recession fears: Some analysts, like QI Research’s Danielle DiMartino Booth, believe the US economy is already showing signs of a recession — but with positive GDP growth in the first quarter and expected strength in Q2, there’s no technical recession in sight. Nonetheless, a long-awaited pullback in high-flying US equities could be next if earnings continue to disappoint. Eventually, the pundits and analysts may see the recession they’ve been incorrectly predicting for the last three years.

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