Is the Party Over? Signs the US Economy Might Be Shifting Gears

Is the US economy shifting gears? Signs point to a slowdown as consumers tighten spending, inflation drops, and the job market cools off. More on EasyAssetManagement's US market report below.

Is the Party Over?
After defying expectations for two years, the US economic boom appears to be winding down. Consumers are tightening their belts, inflation is dropping, and the job market is expected to cool off. In response, markets predict the Federal Reserve will start slashing interest rates in July and keep cutting them throughout 2025, for a total reduction of 2 percentage points.

The US economy has been on fire since 2021. Remember the reopening boom? That, combined with people spending all that money they saved during lockdowns and all the new jobs, really got things going. But lately, that spending party seems to be over, especially for folks who don't have a lot of money saved up. People are missing payments on their credit cards more often than they did in 2007, and a bigger chunk of their income is going towards rent and interest on loans.




Share of disposable income going to rent has been increasing

Looks like the spending party might be over. Spending on things (like clothes, furniture, gadgets) has been dropping for a while now. In the first quarter, the numbers were even worse than expected, and April showed another decline. Even spending on experiences (like eating out, travel) which was helping things out, slowed way down in April to just 0.10% per month. People are cutting back on non-essential purchases, especially eating out, which has been down for four out of the last five months. The only bright spots are spending on financial services and healthcare, though even healthcare spending is finally starting to cool off, going from a growth of 0.5-0.6% per month to 0.4% in real terms.

If the job market takes a tumble, people might slam on the brakes even harder when it comes to spending. Surveys are already showing folks are getting worried about losing their jobs and finding new ones if they do get laid off. This could lead to a bigger spending slump.

Things are looking shaky in the job market. Experts say things might get bumpy instead of a slow decline. Companies might hit the brakes hard on hiring, or even start laying people off, instead of just slowing down their hiring process. This could lead to a more dramatic slowdown in the economy than we've seen so far.

The Fed is expected to start cutting interest rates by September, regardless of whether the job market stays strong or not. Inflation has slowed down, especially for non-housing costs, which is good news for the Fed. Even though inflation probably won't hit their target, it's going down in the right direction, and that might convince even some of the more hawkish policymakers on the Fed to agree to a rate cut by September.

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