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Trouble is brewing for the U.S. consumer, according to one strategist, and a substantial labor market downturn could kick-start a recession.
“I think the U.S. consumer is walking towards a cliff, basically,” Chris Watling, chief executive of financial advisory firm Longview Economics, told CNBC’s “Squawk Box Europe” on Wednesday.
He said that a slew of recent economic indicators had showed consumers are quickly running out of excess cash, while household savings are coming under pressure.
“Of course, retail sales have been quite strong for the last few months and everyone gets quite excited about that, but, actually, if you look at what’s going on, the household savings ratio has been run down, and, in fact, real income growth has been negative for three months,” Watling said.
“So, it’s not quite all good news. I mean, quite the reverse, I think there are some real challenges coming for the U.S. consumer.”
His comments were made even as data suggests the U.S. economy may have turned in another stellar performance, heading into the final part of the year.
Gross domestic product posted a 4.9% annualized gain for the third quarter, according to a Commerce Department report Thursday.
Shoppers carry retail bags along the Magnificent Mile shopping district in Chicago, Illinois, on Tuesday, Aug. 15, 2023.
Kelter Davis | Bloomberg | Getty Images
The latest GDP data reflects the strongest U.S. economic output since the final three months of 2021, when growth was just shy of 7%.
Many strategists, asset managers and CEOs remain concerned about the longer-term economic outlook and will continue to closely monitor forward-looking signals for clues on whether the U.S. can avoid a recession.
The U.S. economy and its pivotal consumer component have been written off many times before, but the Federal Reserve’s move to keep liquidity flowing in the sector has partly helped to keep growth afoot.
‘The U.S. is in for a tough time’
“We see at the margins the consumer is under a lot of pressure and, in fact, the labor market is under a lot of pressure as well. We had a good payrolls month, but if you look at a lot of the indicators of where the labor market is likely to go, a lot of them are fraying at the edges,” Watling said.
“We’re going to get to the point in the next few months when I think the labor market starts to deteriorate more meaningfully and that’ll kick-start the recession when we get there,” he added.
Asked what his forecast would likely mean for the stock market, Watling replied: “I think leadership probably is changing in this stock market. Tech has been under a lot of pressure since July, and I think the stock market is struggling to know really exactly where it wants to go.”
“From our point of view though, I can see a bounce for a month or two. It’s been quite beaten up, markets have been coming down since July but I think net-net, you want to be underweight equities if you are looking beyond the next few months,” he continued. “I think the U.S. is in for a tough time.”
— CNBC’s Jeff Cox contributed to this report.
Correction: This article has been updated to correct the date of Chris Watling’s interview with CNBC’s “Squawk Box Europe.”
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