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The Strength of the U.S. Consumer

May 1, 2022 | Commentary

  • Current personal consumption expenditures are close to 70% of GDP.  Consumer behavior speaks volumes about the health of the economy.  Lingering effects of the COVID shutdown, inflation and Russia’s invasion of Ukraine all potentially weigh upon the forward path of this important component of the economy.
  • Despite the array of uncertainties, the average consumer is in strong shape.  Even after Q1, compared to pre-Covid, financial and real estate assets are up and the ability of consumers to service their debts is close to a multi-decade high.
  • Both the aggressive monetary policies by the Fed and the large fiscal stimulus bills by Congress as a response to COVID contributed to this strength.  Stronger consumer balance sheets should help protect future consumption even as the Fed raises its policy interest rate.
  • Sentiment indicators published by the University of Michigan and the Conference Board so far in 2022 suggest softness in consumer attitudes.  These data have not mirrored actual consumer behavior.  When anticipating the direction of the economy it is better to watch what consumers do versus what they say.

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