Resilient US consumer

The American consumer has been the focus of attention on financial markets time and again in recent decades. This is no surprise, as consumption is responsible for almost 70% of US economic output and thus for almost 20% of global GDP. It therefore seems sensible to take a closer look at the US consumer from time to time, especially considering the dramatic rise in interest rates over the past 12 to 18 months.

Resilience

Over the past three decades, the US consumer has been repeatedly written off as the key growth driver of the world's largest economy. But time and again, the cautioners have been proven wrong. For example, Americans proved surprisingly resilient despite sharp increases in energy and food prices and an inflation rate of nearly 10% in 2022. ??

The average price of gasoline per gallon (3.84 litres) nationwide has risen from 1.77 US dollar in the second quarter of 2020 to more than 5 US dollar in the second quarter of 2022. Although gasoline prices have risen slightly again in recent weeks, statistics show that price levels have fallen 10% over the past 12 months. This certainly represents some relief for Americans' household budgets. This was also confirmed by the fact that the year-on-year inflation rate of 5.1% rose by less than the core rate (excluding energy and food) of 5.6%. ?

Constructive outlook

Another indication of our constructive stance regarding US consumption is the percentage that the average American household needs to service its debt. Following the huge rise in interest rates in the US, this figure is of particular importance. Today, on average, a household needs less than 10%, or 9.7% to be precise, of disposable income to service its debt. For comparison, in 1980 it was 10.5%, in 1990 11.7%, in 2000 11.5%, in 2010 12.0% and in 2020 9.7%. The peak was reached before the Great Financial Crisis at 13.1%. In this respect, investors’ recession concerns find some relief.?

Another important question is the affordability of US real estate. In the United States, many private households tie up their real estate with long-term mortgages, which generally have a term of 30 years. These very long-term mortgages have risen from 3% to almost 7% in the last 18 to 24 months. However, given that most residential mortgages in the US were refinanced during the 2019-2021 low interest rate period (3% to 4%), the increase should be bearable for consumers.?

But the environment for consumers remains challenging

Despite this reasoning, we must not forget that the US economy is in a downturn. As a result, American consumers will be looking more closely at their everyday purchases. Companies, industries, and sectors will be affected quite differently. For this reason, we continue to believe that selection within the asset class is the key to success.