Everyone is looking to 2000-02 and/or 2007-09 for guidance, but isn’t the 2022+ bear market starting to look a little like 1937?

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Consumer Spending Is Running Out Of Steam and the Market Isn’t Ready For It

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Credit card data show that spending in May was just 10% higher from the same month last year, according to a Barclays report this week. For the rest of 2021, that monthly spending growth has averaged more like 20%.

That slowing growth, combined with weakening home sales and declines in wage growth, would mean that monetary tightening is already hitting the economy hard. The Fed may be able to tighten less aggressively in July, according to Barclays, which is forecasting just a half percentage point rate hike next month. Rates markets indicate a strong chance of a three-quarter percentage point hike.

The stock and corporate bond markets don’t reflect the risk of a weakening consumer, wrote Barclays strategists including Ajay Rajadhyaksha, Ryan Preclaw, and Hale Holden, in a separate Tuesday note. The slowing growth of consumer spending underscores how difficult the Fed’s job is now as it looks to contain inflation that’s running at a four-decade high, while trying to avoid tipping the economy into recession.

 

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