US Consumer Spending Recovery Will Be Slow and Long
CreditSights expects a long and slow recovery when US consumers emerge from the current recession, with as much as $2.8 trillion of excess leverage remaining to be unwound.
“It is not just the current recession that poses such risks for investors, it is the likely lackluster nature of the subsequent recovery,” CreditSights notes in The US Consumer Conundrum. “A defining factor in that recovery will be the strength of consumer expenditure. We are not expecting a strong rebound despite the rapid drop off in economic growth.”
The individual pieces add up to a picture of a consumer that is challenged on multiple fronts and, we believe, is in the midst of a secular deleveraging that will take many months, if not years, to play out.
“Although it is hard to estimate how far this trend can extend the adjacent chart that plots total household liabilities as a percentage of GDP suggests that the current level of 100% is approximately 20% above the prevailing long term trend level indicated by the red line. That suggests there is still a substantial amount of wood to chop even if there is no overshooting that is typical in big cyclical shifts, liabilities would need to fall by $2.8 trillion to be 80% of current GDP levels.“
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