In many ways, consumers’ situation is the best that it has been in decades, yet there is an increasing amount of angst building up around their near-term future condition. In meetings with clients last week, a clear recurring theme was concern about the state of the U.S. consumer. This wariness was reinforced this week by corporate earnings reports, in particular that of Netflix, which seemed to perfectly encapsulate all the current dynamics impacting the consumer spending—inflation, war in Ukraine, and a rotation in spending in a post-pandemic economy.
In this Economics Weekly, we discuss these dynamics with the view that personal consumption faces a number of headwinds going forward and because of that, the risks are tilted to the downside. To prevent a greater deceleration in spending, consumers will likely have to dip further into their excess savings and lean more on their strong balance sheets going forward.
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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.