This is the Chart of the Week from today’s Morning Brief, which you can subscribe to receive in your email every morning along with:
Current consumer sentiment data has taken a particularly negative turn.
Concerns surrounding President Trump’s tariff policies and their effects have dampened the consumer outlook on the economy, with the latest consumer confidence index registering its lowest point in over four years as reported by the Conference Board on Tuesday.
Nevertheless, this drop in consumer sentiment has led economic forecasters to adjust their growth expectations downward. While the risk of a recession is higher, there isn’t a unanimous agreement on Wall Street about this concern.
While we can identify what might improve the situation, it is equally crucial to consider the unpleasant alternative: what could potentially worsen it.
This week’s chart illustrates what that may be.
The decline in consumer confidence in March was widespread among income groups, with “the lone exception being households earning over $125,000 annually,” according to the Conference Board. This trend has also been evident in other economic indicators, particularly regarding the personal savings rate.
Most consumers are uncertain about the future, but high-income earners have yet to show signs of panic. This creates a pivotal juncture in the economic narrative at present.
High-income consumers account for about half of all consumer spending in the US. If these major spenders act as a stabilizing force for the US economy currently, then how they manage that responsibility is extremely important.
On one hand, their support could mitigate the potential fallout from a weakening consumer base, acting as an economic buffer against a recession.
However, if the political instability that has affected both consumer sentiment and the stock market continues to drive stock prices down, the risk of a recession could increase as high-income spending begins to falter alongside decreasing economic activity.
According to Deutsche Bank’s senior US economist Brett Ryan, the significant concern lies in how uncertainty impacts asset prices. While this demographic remains strong, “significantly affecting their asset prices” could be the critical factor that pushes them towards austerity measures. This, in turn, could lead the economy to struggle.
“A 10% decline in the stock market probably won’t cause the top 20% income group to drastically cut back on spending. However, a drop of over 20% in equity values would tell a different story,” Ryan mentioned. Notably, a 20% decrease from recent all-time highs would place the S&P 500 (^GSPC) slightly above 4,900, representing approximately a 12% drop from current levels.
