While there is “no evidence of peril” in summer spending patterns by consumers, Jefferies Equity Research analyst David Katz opined that “rising tensions end [the second quarter] on a downbeat.” He offered this view in a July 2 investor note.
“That said, we remain relatively close to recent highs and, as has been the case recently, expectations for the economy are driving the shift,” Katz continued. “Meanwhile, the consumer’s perception of the labor market continues to worsen, while spending intentions do not.”
Declines in personal finances and consumer sentiment were cited as causes for the public’s downturn. “Over the past several weeks, much of the ebullience that returned to consumer sentiment has largely been worked off,” the Jefferies analyst wrote.
Katz cautioned that consumer perceptions and behavior are not monolithic. For instance, well-educated consumers’ sentiments are on the rise, while Republicans’ are on the downswing.
Compared to a post-COVID rating of 103 for consumer outlook, the current rating stood at 97. However, perceptions of the labor market were downright gloomy. Among survey respondents, 53 percent foresaw layoffs coming in the next three months, up from 44 percent a month earlier. Also, nearly 50 percent of respondents’ own hours had been reduced in the past month.
Consumers were reported to be saving more, but the number making impulse purchases shot up to 57 percent from 54 percent in May. Also, slightly more were dining out instead of at home.
In a positive augury for new-car sales, 38 percent said they were contemplating the purchase of a new vehicle in the near term. For Katz, this “suggests that the threat of tariff-led price hikes trumps economic fears.”
Looking ahead to the summer, Jefferies analysts saw spending on essentials going up and discretionary outlays diminishing. However, low-income consumers are making greater discretionary purchases.
“For now,” Katz deduced, “we believe this probably aligns with an exacerbated summer vacation shift (and lack thereof for the lowest income consumers), especially with no other smoking guns from a sentiment perspective.”
Still, the higher income brackets appeared to be cutting back their discretionary spending slightly more than was normal for the summer months. “This could be something to watch,” Katz concluded.
