The U.S. consumer may not be resilient for much longer

THE U.S. CONSUMER MAY NOT BE RESILIENT FOR MUCH LONGER

The need for price stability has dominated headlines in one way or another for over two years and it appears that the resilient U.S. consumer might finally feel the pain of decades high interest rates.

At least that's how J.P.Morgan analysts see it when looking at the spending intentions of over 1,000 consumers in a survey.

For example, excess savings, widely seen as a key factor in shaping the outlook for output and inflation, was seen as prevalent among 29% of the respondents, compared with the 40% six months ago.

Additionally, 60% of the respondents said they do not have enough savings to support their standard of living this year, compared with 55% in September, while over half the number of respondents cited an intention to reduce credit card spending.

The dynamics around the labor market play a significant role in determining monetary policy outlook and March's hotter-than-expected jobs report has deepened uncertainty regarding the expectations for interest rate cuts this year.

However, J.P.Morgan says it sees cracks in the U.S. employment situation, with only 12% of the respondents who had salary increases saying that the hikes were enough to more than offset the cost of living.

Yet in the midst of signs of stabilization, the brokerage sees some sectors that could experience tailwinds as a result and so offer good value for investors.

At the top at the list stand the dollar stores such as Dollar Tree DLTR and Dollar General DG as investors shift to cheaper alternatives for discretionary purchases.

Among discretionary items, clothing is expected to continue to remain a top pick for consumers, though a shift to more off-price stores is likely, with stores like TJX Companies TJX and Ross Stores ROST positioned to continue taking market share.

In the lead up to the U.S. personal consumption expenditure data for March expected on Friday, markets await any signs that softer consumer spending is translating into a downward trend in the Federal Reserve's preferred inflation gauge.

(Johann M Cherian)

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