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We're hearing a lot about “resilience” these days, with the buzzword being applied to earnings, economic data, and consumer spending. And as retail week hits its stride with fresh earnings and data, we'll get another look at exactly how resilient the latter is.
All summer, the unflappable consumer has impressed economists even as they warn of potential challenges to spending momentum. Economists expect today’s retail sales report to show a reacceleration in spending in July, rising 0.4% from June for both the headline and ex-autos and gas numbers.
But in the fall, things start to get murkier.
Banks are forecast to further tighten lending standards. The excess savings that shoppers built up over the pandemic is shrinking. And the added specter looming even larger is the ending student debt repayment moratorium.
Those are some pretty gusty headwinds, but there's good reason to believe the effects of a wave of student loan payments restarting might be muted.
Elyse Ausenbaugh, a global investment strategist at JPMorgan, told Yahoo Finance that while investors need to pay attention to spending trends as repayments resume in October, there's reason to remain sanguine.
“[The repayments] could certainly slow down the consumer, but I don’t think it’s going to wholesale erode the resilience we have seen, especially when you’ve got a labor market that is working in the consumer’s favor,” she said.
JPMorgan's team isn't the only one with this view. Bank of America economists analyzed card spending data and came to a similar conclusion, finding that households that continued to pay down student debt during the moratorium spent more than those who paused their payments.
Gen Z borrowers, however, were a bit of a different story, according to Bank of America’s data. At the beginning of the pandemic, younger people pausing their student debt payments charged more on their cards — particularly for clothing.
That trend slowed, but the economists concluded: “To the extent that there is a meaningful impact from the resumption of student loan repayments, it is likely to be seen in spending by younger, lower-income consumers, and in discretionary categories (such as clothing).”
Bottom line, most economists don’t expect spending to take a big tumble — especially with real wages rising. While there is no doubt that individual impact for some borrowers could be onerous, it likely won't be enough to cause a contraction across the board.
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