The American consumer isn’t simply pulling back. They are
changing the way they spend – and save. Our U.S. Thematic and
Equity Strategist Michelle Weaver digs into the data.
Read more insights from Morgan Stanley.
----- Transcript -----
Michelle Weaver: Welcome to Thoughts on the
Market. I'm Michelle Weaver, Morgan Stanley's U.S. Thematic and
Equity Strategist.
Today, the U.S. consumer. What's changing about the ways
Americans spend, save and feel about the future?
It's Monday, July 7th at 10am in London.
As markets digest mixed signals – whether that's easing
inflation, changing politics, and persistent noise around tariffs
– U.S. consumers are recalibrating. Under the surface of headline
numbers, a more complex story is unfolding about the ways
Americans are not just reacting but adapting to macro challenges.
First, I want to start with a big picture. Data from our latest
consumer survey shows that consumer sentiment has stabilized,
even as uncertainty around tariffs persists, especially into
these rolling July deadlines. Inflation remains the top concern
for most. But the good news is that it's trending lower. This
month more than half of respondents cited inflation as their
primary concern, a slight decrease from last month and a year
ago. Now, that's a subtle but a meaningful decline suggesting
consumers may be adjusting their expectations rather than bracing
for continued price shocks. At the same time though political
concerns are on the rise. More than 40 percent of consumers now
list the U.S. political environment as a major worry. That's
slightly up from last month; and not surprisingly concern around
geopolitical conflicts has also jumped from a month ago.
Now, when we break this down by income levels, we see some
interesting trends. Inflation is the top concern across all
income groups, except for those earning more than $150,000. For
them, politics takes the top spot. Lower income households,
though, are more focused on paying rent and debts, while higher
income groups are more concerned about their investments.
As for tariffs, concern remains high but stable. About 40 percent
of consumers are very worried about tariffs and another 25
percent are moderately so. But if we look under the surface, it's
really showing us a political divide. 63 percent of liberals are
very concerned, compared to just 23 percent of conservatives who
say they're very concerned.
Despite these worries, though, fewer people overall are planning
to cut back on spending. Only about a third say they'll spend
less due to tariffs, which is down quite a bit from earlier this
year. Meanwhile, about a quarter plan to spend more, and roughly
a third don't expect to change their plans at all.
This resilience points to the notable behavioral trend I
mentioned at the start. Consumers are not just reacting, they're
adapting. Looking at the broader economy, consumer confidence is
holding steady according to our survey, although it's slightly
down from last month. But when it comes to household finances,
the outlook is more positive with a significant number expecting
their finances to improve and fewer expecting them to worsen – a
net positive.
Savings are also showing some resilience. The average consumer
has several months of savings, slightly up from last year.
Spending intentions are stable with nearly a third of consumers
planning to spend more next month while fewer planned to spend
less. And when it comes to big ticket items, more than half of
U.S. consumers are planning a major purchase in the next three
months, including vehicles, appliances, and vacations.
Speaking of vacations, summer travel season is here and I'm
looking forward to taking a trip soon. Around 60 percent of
consumers are planning to travel in the next six months, with
visiting friends and family being the top reason.
So, what's the biggest takeaway for investors?
Despite ongoing concerns about inflation, politics and tariffs,
U.S. consumers are showing remarkable resilience. It's a nuanced
picture, but one that overall suggests stability in the face of
uncertainty.
Thanks for listening. I hope you enjoyed the show, and if you
did, please leave us a review wherever you listen and share
Thoughts on the Market with a friend or colleague today.
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