In a recent interview on CNBC’s “Squawk Box Europe,” Chris Watling, who serves as the Chief Executive of Longview Economics, voiced his apprehensions regarding the trajectory of the US consumer.
He expressed a rather grim outlook, comparing the situation to a precarious walk toward a cliff’s edge.
Watling’s concerns are rooted in the belief that the US consumer segment is approaching a critical juncture, raising alarms about the stability of the nation’s economy.
The strategist warns that the US consumer faces imminent trouble, and a severe labor market decline may trigger a recession.
Chris Watling thoroughly analyzed recent economic indicators and arrived at a concerning observation.
Concerns over US consumer trends amidst robust economic data
On “Squawk Box Europe,” he also highlighted the unsettling trend of US consumers depleting their surplus funds and putting increased strain on household savings.
Despite the appearance of strong retail sales figures, Watling underscored the declining household savings ratio.
That indicates that the seemingly robust retail performance may not indicate overall economic health.
Watling emphasized that real income growth had taken a negative turn over the past three months.
This development, he noted, was in stark contrast to the optimism generated by the solid retail sales figures.
Thus, it raises questions about the sustainability and depth of the economic recovery.
“It’s not all positive,” he cautioned, suggesting that the US consumer faces significant impending challenges.
Despite indications of another strong performance for the US economy in the year’s final stretch, his remarks stand.
Q3 GDP surpasses expectations, driven by consumer spending and investment
According to a report from the Commerce Department, the US economy displayed a robust performance, surpassing expectations in the third quarter.
The Commerce Department report released on Thursday showed that the third quarter saw gross domestic product rise by 4.9% annually.
The Gross Domestic Product (GDP) grew at an annualized rate of 6.7%, substantially increasing from the unrevised 2.1% pace recorded in the second quarter.
This exceeded the projections of economists surveyed by Dow Jones, who had anticipated a more modest 4.7% acceleration in real GDP when adjusted for inflation.
Factors, including substantial contributions from various sectors, drove this remarkable expansion.
Notably, consumer spending saw a significant uptick, with personal consumption expenditures surging by 4% during the quarter.
This marked a notable contrast to the mere 0.8% rise observed in the previous quarter and accounted for a substantial 2.7 percentage points of the overall GDP growth.
Furthermore, inventories made a meaningful contribution of 1.3 percentage points to the GDP increase, underlining the importance of efficient inventory management.
Gross private domestic investment demonstrated resilience with an impressive surge of 8.4%.
Government spending and investment also contributed to this remarkable economic performance, jumping by 4.6%.
The third-quarter GDP figures suggest a robust, multi-faceted growth story for the US economy, with consumer spending, investment, and government contributions all contributing to the positive outlook.
Concerns mount as the US economy shows signs of strain and uncertainty
The most recent GDP figures depict the most robust US economic performance since late 2021 when growth nearly reached 7%.
Concerned about the long-term economic outlook, many strategists, asset managers, and CEOs are closely monitoring forward-looking signals for signs of avoiding a recession in the US.
The US economy, including its crucial consumer sector, has faced skepticism in the past. Still, the Federal Reserve’s liquidity measures have contributed to sustaining growth.
Watling observes that the consumer and labor market face considerable strain, with signs of weakening in various indicators.
While there was a positive month for payrolls, Watling notes that many labor market indicators are showing signs of deterioration.
He anticipates that the labor market will undergo more pronounced deterioration in the upcoming months, potentially initiating a recession.
When questioned about the implications for the stock market, Watling suggested that the market’s leadership might be shifting.
He noted that the tech sector has faced significant challenges since July, and there appears to be uncertainty in the stock market’s direction.
He expects a short-term market rebound, acknowledging recent declines since July. However, he advises reducing equity exposure for the longer term.
Despite anticipating a brief market upturn, he recommends a lower equity allocation when considering the extended outlook.