As the market enters correction territory, don’t blame the US consumer – they are the driving force behind the economy’s resilience and potential for recovery.
The recent earnings data from major companies across various sectors paints a mostly positive picture of consumer spending in the US. Despite concerns about a potential recession and rising interest rates, consumers are continuing to spend on goods and experiences.
One key area where consumer spending remains strong is in the housing market. While existing home sales have dropped, builders of new homes are finding ways to attract buyers. They are offering mortgages at lower interest rates, around 5.75%, compared to the 8% rates for other mortgages. This strategy has helped drive an 8% profit increase and a 43% rise in new home orders for PulteGroup, one of the nation’s largest builders.
In the auto industry, car sales have picked up, but Tesla and Ford have experienced some challenges. Tesla attributed lower-than-expected sales to high interest rates, as the monthly payment for cars increases with rising rates. However, General Motors saw success in the market, with unit sales up 7.7% for the quarter. Despite reports of weakening consumer sentiment, GM gained market share and offered incentives below the industry average.
Major banks and credit card companies also indicate that consumers are doing well financially. Bank of America and JPMorgan Chase report that consumer balances are still higher than pre-Covid levels. Credit card companies like American Express and MasterCard describe US consumers as resilient, with low unemployment levels and increased spending.
However, Discover Financial Services stands out as one of the few banks to increase loan loss reserves for consumer debt. This led to a significant drop in profit as loan chargeoffs doubled. Despite this, overall household debt burdens remain stable.
Overall, the earnings data suggests that consumers are holding up better than expected. They continue to spend on various products and experiences, even in the face of rising interest rates. While there are some challenges and warts in the economy, the consumer remains a strong force driving the market forward.