As we approach the middle of 2024, a closer look at the latest consumer data reveals a landscape of mixed signals and potential slowdowns in the U.S. economy. From spending trends to employment figures, income growth, and consumer confidence, several key indicators suggest that while the economy remains resilient, challenges lie ahead.

Spending: A Slowdown in Consumer Activity

Real consumer spending has shown signs of deceleration, growing at a modest 2.6% year-over-year in April and maintaining a 2.5% average annualized rate over the last six months. This moderation is reflected in more recent data, where nominal retail sales saw a mere 0.1% increase in May. Notably, core retail sales, which exclude volatile categories like autos and gasoline, also rose by just 0.4% in nominal terms. However, revisions to prior months’ figures have painted a less optimistic picture, signaling potential weaknesses in consumer sentiment and spending capacity.

The cautious tone in Q1 earnings reports and company commentaries underscores a more guarded consumer outlook. Despite these headwinds, there’s an expectation that real spending growth will remain above consensus, projected to reach 2.2% in the final quarters of 2024. This forecast is bolstered by backward-looking tax payments and inflation pressures, which are likely to support modest gains in consumer activity moving forward.

Employment: Strong Job Market but Rising Unemployment

The labor market continues to exhibit strength, with job growth surpassing expectations in May. However, the unemployment rate inched up to 4.0%, reflecting a rebalancing in labor demand. This rebalancing has seen a shift from simply filling open positions to creating new jobs, indicating that the market is adapting to current economic conditions.

Despite the rise in unemployment, job gains have remained robust, outpacing potential growth. The persistent gap between job openings and the number of unemployed workers—currently at 1.4 million more job vacancies than available workers—suggests a tight labor market. Looking ahead, firm labor demand, coupled with expanded labor force participation and continued immigration, is expected to drive average monthly job growth to around 168,000 for the rest of 2024. The unemployment rate is anticipated to hold steady at 4.0% by year-end.

Income: Slower Growth Amid Higher Tax Withholding

Real disposable income growth has decelerated, increasing by just 1.0% year-over-year in April. The annualized rate over the past six months stands at 1.4%, reflecting a sluggish pace. This slowdown is largely attributed to an increase in tax withholding, which has raised the effective tax rate and dampened disposable income growth.

The impact of lower real tax refunds, along with a moratorium on the employee retention tax credit, has weighed on discretionary household cash flow, particularly in March and April. Nevertheless, robust employee compensation and ongoing job gains are expected to drive real income growth to 2.5% in the latter part of 2024. This positive outlook is underpinned by projected wage gains across all income quintiles, which are anticipated to reduce disparities and support overall income growth.

Wealth: Strengthening Household Balance Sheets

Aggregate household balance sheets have shown resilience, with asset price increases bolstering net worth, particularly among older households. The net worth-to-disposable personal income ratio remains near its all-time high, indicating strong household financial health. This positive trend is expected to provide a modest boost of 0.3 percentage points to spending growth over the coming year.

The saving rate has held steady at 3.6% in April, but is expected to be revised upward in light of Friday’s personal spending report. Forecasts suggest that the saving rate will recover to 4.1% by the end of 2024 and 4.4% by the end of 2025, reflecting increased savings as households continue to build financial buffers.

Debt: Slower Credit Growth and Rising Delinquencies

Consumer credit growth has moderated, increasing by 1.9% year-over-year and maintaining a 1.4% average annualized rate over the last three months. Despite rising household leverage, debt servicing costs remain low by historical standards, providing some relief to consumers. However, credit delinquencies have been on the rise, likely driven by a riskier borrower pool, increasing interest expenses, and the resumption of student loan payments.

There is concern that lower-income households may be nearing their borrowing capacity, posing a risk to future spending. While delinquency rates are expected to rise modestly, the overall impact on spending is likely to be limited, given that credit growth has accounted for just 9% of spending growth over the past year. Barring significant labor market deterioration, credit conditions are expected to remain manageable.

Consumer Confidence: A Cautious Outlook

Consumer sentiment has taken a hit, with the University of Michigan’s consumer sentiment index showing a decline in its preliminary June report. The Conference Board’s consumer confidence index also dipped in June, reflecting a cautious outlook among consumers. However, signals from higher-frequency sentiment data indicate that some strength remains, suggesting that while confidence has weakened, it is not uniformly bleak.

Navigating Uncertainty

The latest data from the U.S. Consumer Dashboard highlights an economy in transition, with signs of slowing growth amidst a backdrop of resilience and underlying strength. As we move through 2024, the interplay of consumer spending, labor market dynamics, income growth, and debt will be critical in shaping the economic trajectory. Policymakers and market participants will need to navigate these complex signals to foster sustained economic stability and growth.

While the road ahead may present challenges, the U.S. economy’s capacity for adaptation and recovery provides a foundation for optimism in the months to come.