QUICK QUILL — The gap between the source of consumer spending and the act itself is closing rapidly in 2024. Downside risk to elevated interest payments against this backdrop raises redder flags for household balance sheets given the decimated aggregate saving rate. Record low home buying conditions and 2024’s abrupt reversal in auto buying conditions suggest household budgets are reaching a critical point, especially as it relates to the sensitivity to interest rates. The Fed’s stubbornly tight policy risks a further deterioration in unemployment expectations. Vol is cheap.
TAKEAWAYS
- At $71.4 billion in July, the Real Personal Income Less Transfers-Real Consumer Spending spread has collapsed to just a third of Q1’s $206.7 billion and is the lowest since Q2 2009; at the same time, real personal interest payments remain historically elevated at $440.2 billion
- UMich Home Buying Conditions hit a record low 23 in August, suggesting NAR’s Pending Home Sales Index, already at record lows, will fall further; similarly, Chicago PMI Backlogs running under 40 for six straight quarters high-lights the acute weakness in industrial demand
- The sum of UMich Home and Auto Buying Conditions is at historical negativity, harkening to the Volcker era; impaired borrowing conditions flag upside to UMich Higher Unemployment Expectations which rose to 40% in August and nearing recessionary reads