Is the Consumer Poised to Slow Their Spending?

  • Some lower PMI readings in the UK and Europe have Treasuries trading in the green this morning as fears of a slowing global economy resonate. The angst over China’s troubles are well known and that apparently is reflected in Europe which is a big exporter of high-end goods to that country. Presently, the 10yr is yielding 4.24%, up 22/32nds in price and the 2yr is yielding 4.97%, up 4/32nds in price.


  • Predicting the demise of the US consumer has been the widow-maker trade this year but like a hopeless gambler the temptation remains. The San Francisco Fed issued a paper recently that the cash horded by consumers during the lockdowns and subsequent stimulus programs is about to run out. The paper predicts the cash pile will be depleted sometime during this quarter.  In addition, several big retailers have recently missed on earnings and/or offered tepid forecasts on consumer spending. So, the ingredients for a slowdown seem to be building.


  • Adding to that case is the resumption of student loan payments next month. Some estimates put the average payment at $300 – $500 per month and that will obviously have an impact on discretionary spending. Meanwhile, the consumer has been dipping into their credit cards to fund consumption more and more. That can continue for awhile but as debt payments increase there may be a hesitancy to continue the debt-fueled spending (see graph below).


  • While the consumer has seemed somewhat immune from the Fed’s tightening cycle, the residential housing market is feeling the strain. Existing home sales yesterday disappointed at 4.07 million houses sold (annualized), and while not a huge dip it was the lowest sales activity since January. Scant inventory and higher mortgage rates get most of the blame and those mortgage rates are only headed higher given the back up in yields this month. In fact, today’s MBA Mortgage Application activity for the week ended August 18 reported the lowest applications for a mortgage since 1995 as the 30yr mortgage rate jumped to 7.31%, the highest since 2000. So, expect more struggles in the housing market.


  • Just released this morning was the preliminary read on August PMIs and they disappointed which is adding to the Treasury rally. The manufacturing sector slumped to 47.0 vs. 49.0 in July which was the expectation. Meanwhile, the service sector also disappointed at 51.0 vs. 52.3 in July and 52.2 expected. While the service sector barely remains in expansionary territory, it’s the lowest print since February.

Total Credit Card Balances (in Trillions)

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.77 5.52 5.47 5.47 5.57 6.04
0.50 5.76 5.49 5.41 5.36 5.43 5.92
1.00 5.75 5.46 5.37 5.31 5.34 5.80
2.00 5.45 5.32 5.23 5.22 NA
3.00 5.19 5.16 NA
4.00 5.12 NA
5.00 5.08 NA
10.00 NA

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Published: 08/23/23 Author: Thomas R. Fitzgerald