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Why US consumers could dash Biden’s re-election hopes

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Summer is finished. Children are returning to school, workers are returning to work, and the 2024 campaign is heating up. Joe Biden is touting “bidenomics” to voters, bragging about job creation and ultimately some increase in real incomes.

But Americans, who spend insane amounts on vacation, dining and travel, may be about to rain down on Joe’s parade. Consumers are financially strained, having financed their summer vacations and post-pandemic spending by saving less and borrowing more – a trend that is not sustainable. People are willing to rack up debt because there are plenty of jobs and they don’t worry about a sudden loss of income. It seems to be changing.

Falling consumer confidence, rising delinquencies and a weakening job market suggest the party may soon be coming to an end, as the economy hits an unexpected tough spot ahead of election season .


Given that the actual polling average on the president’s handling of the economy now shows just 38% approval and 58% disapproval, a downturn could dash his re-election hopes.

A recession is not part of the consensus forecast. Despite the Federal Reserve’s aggressive interest rate hikes, the economy has remained resilient, largely thanks to surprisingly strong hiring.

But today the job market is clearly struggling, albeit at a breakneck pace. In August, employers added 187,000 jobs, well below the monthly average of 271,000 over the past year. While job creations have fallen, job creations declared in recent months have been revised downwards sharply. In addition, wage increases slowed last month. This is what the Federal Reserve hopes to achieve through its aggressive interest rate hikes. The question is: will hiring slow down or turn into layoffs?

Employers across the country have defied prognosticators for months by continuing to hire or retain workers even as corporate profits waned. Businesses struggled to increase their workforce after the pandemic shutdowns and were unlikely to face a labor shortage again.


If the labor market slows, CEOs are likely to change course; it could happen now. The most recent JOLTS report showed that the number of job vacancies fell from 338,000 to 8.8 million in July. In addition, the number of “resignations” fell by 7%, indicating a loss of confidence among workers. The number of unemployed per vacancy, although still very low, has started to increase slightly.

Unemployment in August rose to 3.8% from 3.5% in July, partly thanks to a welcome increase in labor market participation, which means that more people are finally coming out of the gap and looking for a job. job. This increase is due to a continued decline in the amount of COVID-19-related benefits available, including an imminent resumption of interest payments on student loans after a three-year pause. The activity rate climbed to 62.8, still not reaching the 63.2% level it was before the pandemic.

Meanwhile, consumer confidence fell last month, according to the Conference Board. The council’s chief economist noted: “Assessments of the current situation plunged in August due to less optimism about employment conditions: fewer consumers said jobs are ‘plenty’ and more have said jobs are “hard to get”. Persistent inflation and rising interest rates on borrowing, with credit card rates now above 20%, contributed to the gloom.

The decline in optimism has occurred in almost all age and income groups. Not surprisingly, low-income Americans are increasingly pessimistic; this group has been particularly hard hit by rising prices for basic necessities like food and rent.


A Census Bureau survey recently found that 42% of households relying on the Supplemental Nutrition Assistance Program (or SNAP) skip meals because they cannot afford enough food; A further 55% said they were eating less to make ends meet, double the figure from the previous year.

The financial stress is also manifesting itself in an increase in defaults on consumer debt, and in particular on auto loans, which have jumped above 2%. The rise in delinquencies is particularly acute among low-income Americans, who hold so-called “subprime” loans. The Washington Post reports: “During the financial crisis, 5 percent of these subprime borrowers were 60 days or more past due on their loans; that figure now stands at nearly 7 percent…. »

As debt hits record highs, the amount Americans are saving is plummeting. In July, consumer spending rose 0.8% but income only rose 0.2%; the difference reflects an increase in borrowing as well as a drop in the savings rate to 3.5%, well below the historical average of 8.9% from 1959 to 2023 and the level of 4.7% recorded in May of this year.


Other worrying signs are the Conference Board’s Leading Indicators Index, a strong forecasting tool, which has fallen for 16 straight months; in August, the slowdown accelerated. Also of concern is the inverted yield curve, another reliable indicator of a downturn with a lag of up to a year.

Most analysts have thrown in the towel on their pessimistic forecasts, as these have proven wrong over the past year. But the current optimistic consensus is worrying. As Ed Hyman, renowned economist at ISI, keeps reminding his clients, everything was fine just before the Great Recession…until it wasn’t.


Fox Gt

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