Our US Thematic Strategist discusses surging confidence as the
political landscape evolves, back-to-school spending starts
strong and travel providers enjoy post-COVID demand.
----- Transcript -----
Michelle Weaver: Welcome to Thoughts on the
Market. I'm Michelle Weaver, Morgan Stanley's US thematic
strategist. Along with my colleagues bringing you a variety of
perspectives, today I'll give you an update on how recent market
volatility and the upcoming US election are affecting the US
consumer.
It's Monday, August 26th at 10am in New York.
A few weeks ago, we saw really sharp volatility. It was partially
sparked by the unwind of the yen carry trade. But there are also
renewed fears about a growth slowdown for the US or a possible US
recession. Our economists do not think we are going into a
recession though, and they have reaffirmed their longstanding
view of a soft landing for the economy as a base case. And they
think there's a slowdown, but not a slump.
From the more company side, this earning season showed that the
US consumer is softening incrementally; but they're not falling
off a cliff. Spending is slowing this year, but it's on the heels
of what was really high spending over the last couple of years.
We did see some softness during second quarter results around the
consumer. Consumer confidence is still intact, and our most
recent survey in July showed a pretty strong improvement in
sentiment. We think that this is partially a function of the
political environment. We ran the survey from July 25th to 29th,
shortly after President Joe Biden dropped out of the race and
endorsed Vice President Kamala Harris. And we saw the biggest
improvement in sentiment was for those who consider themselves
middle of the road politically.
Their net sentiment toward the economy improved from negative -23
percent to -1 percent. Net expectations are also really positive
for those who identify as liberal. Net sentiment for very liberal
respondents is +34 percent, while it's +20 percent for more
somewhat liberal ones. Expectations for conservatives are still
negative though, but they have improved since the prior wave of
our survey.
So, we do think that some of this increase in excitement and
increase in confidence has been around the renewed political
environment, renewed interest in the race.
As we get close to the end of summer, we note two other key
trends. Back to school shopping and travel. So, for
back-to-school shopping, we're seeing pretty positive results
from our survey. Consumers are reporting they're planning to
spend more this back-to-school season versus last year. We saw an
increase of 35 percent in spending intentions. And then when we
think about the different back to school categories people are
spending on, apparel saw the biggest net increase in spending
plans versus last year. But we also saw an increase for school
supplies and electronics. So, all things very important as the
kids go back to school or people go off to college.
Travel's been one part of the market that's held up super well
post pandemic. People were very excited to get out there and go
on vacations. And we saw, frankly, an unexpected positive level
of demand for the past few years, and we didn't see that faster
catch up in demand that a lot of people were expecting post
pandemic. I know myself; I've been very excited to travel the
last few summers. But this earning season we're starting to see
more of a mixed bag within the travel space.
Hotels across the board flag softening demand for leisure stays,
but business travel has held up well. We saw a different story
among the airlines though; several management teams were really
emphasizing continued strong demands for air travel. And our
survey is supportive of these comments and show that travel
intentions remain stable and strong, and plans to follow through
on travel that involve a flight also remain robust.
The next three months leading up to the US election will
certainly be interesting though, and we'll continue to bring you
updates.
Thank you for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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