'Something bad is happening around the corner': Why a consumer spending drop is likely in the fall


Getty Images News But The Conference Board chief economist Dana Peterson says that businesses should prepare for a different kind of economic headwind on the horizon for later this year and into 2024: a trio of forces that may lead consumers to pull back on spending.

Right now, Peterson says, the data suggests that consumers are spending across the economy and consumer sentiment has taken a turn for the better.

“For the first time in a long time, consumers are saying that their current situations and their expectations for the future are very optimistic,” Peterson told CNBC correspondent Kate Rogers at CNBC’s Small Business Playbook virtual event on Wednesday. For most of the year, consumers have said that they are fine right now, but worried about what’s to come. They believe a recession will be coming. “

That boost in confidence has come as inflation has waned, workers have continued to see salary increases and the job market has remained steady.

Credit card company data also shows that cardholders continue to spend. Visa

CEO Ryan McInerney stated that the consumer had remained resilient. He added that the data did not show any changes in consumer behavior across segments. According to the Bureau of Economic Analysis’ latest data, real personal spending adjusted for inflation reached a new record high in June. On


‘s third quarter earnings call last month, CEO Ramon Lagurta said that consumers are looking for better deals and shopping more from dollar stores and club retailers. In the Conference Board CEO survey, which Peterson also discussed on Thursday’s “Squawk box”, a similar boost in confidence was noted. Top executives were less pessimistic but still had a reading that was below neutral. “Fewer expect there’s going to be a recession going forward but they still think that something bad is happening around the corner,” Peterson said.Peterson’s first area of concern outlined at the CNBC small business event relates to the aggressive interest rate hikes made by the Federal Reserve over roughly the past year and a half, 11 rate hikes that have taken its benchmark rate above 5%. Peterson stated that the “lagged effects” of interest rate increases will begin to affect consumer spending. Peterson says that as the Federal Reserve increases rates, there has been an impact on the housing and car markets, and other large purchases for which consumers might take out loans. However, cash and credit card payments at stores and restaurants have not slowed. However, “ultimately, that debt service is going to kick in, and it’s going to kick in at a higher rate,” she said.Secondly, pandemic-era savings that are already being depleted are likely to be exhausted at some point during the upcoming fall, Peterson said. Jamie Dimon, CEO of JPMorgan Chase

, said in December that the $1.5 trillion excess stimulus program will run out in 2023 and “may derail the economic system, causing a hard or mild recession.” Peterson added that the return of student loan repayments will reduce spending. According to the U.S. Department of Education, student loan payments will resume in October after a three-year hiatus. The average monthly bill is $350.0 It is estimated around 40 million Americans have debt from their education totaling nearly $1.8 trillion, and the typical monthly bill is $350.

“Certainly, for the second half of the year, we’re going to see slower consumer spending,” Peterson said.However, there is a potential bright side in this scenario, related to the recent decline in inflation.“Once inflation gets really close to falling, maybe to 3% or even closer to 2%, the Fed will start cutting interest rates,” Peterson said. Peterson said that the Fed will start cutting interest rates once inflation falls to 3% or even closer to 2%. “

The Fed is more cautious in predicting a timeline when inflation will return to its 2% target. Chairman Jerome Powell stated that inflation has moderated since the middle last year but still “has a way to go” in order to reach the Fed’s target of 2%. “