By Ryan Boyle

The plural of anecdote is not data.  Broad macro trends will contain and obscure a multitude of micro stories within.  But when a refrain is repeated widely, it merits investigation. 

In recent months, we have noticed growing murmurs about consumers falling behind. Reports of slower spending have come from recent corporate earnings calls:

• Restaurant CEO: “…signs of some consumers trading down within our brands.”
• Apparel CEO: “And in the U.S….the consumer…is a little soft coming into the year.”
• Hardware CFO: “The home improvement market still faces headwinds as we look ahead to fiscal 2024.”

Evidence of overstretched households is also emerging from the financial planning sector.  In 2023, 3.6% of 401(k) account holders took an early withdrawal for economic hardship.  These withdrawals require demonstrating an “immediate and heavy” financial need in order to not be taxed at punitive rates.  

The core of our soft landing call has been favorable employment prospects, but not everyone who is still working is feeling well about the economy.  The University of Michigan Consumer Sentiment Index reached a record low as inflation peaked in summer 2022.  While sentiment across income strata fell uniformly, consumers in the bottom third of the income distribution are still dour, while higher earners have become more upbeat. 

Lower-income households are not enjoying wealth effects from high house prices and the equity rally, while they still must contend with a higher cost of living. Combined with rising consumer credit delinquency, evidence of a bifurcated recovery is mounting. 

Expansions are healthiest when the broadest range of cohorts are progressing.  The growing divergence of experience in the U.S. hasn’t yet threatened our soft landing call.  But we’d feel more confident in that outlook if the cushion under the cycle was a little wider.