The United States has been among the chief bright spots in the world economy. The European Union has been dealing with anemic growth for years, the United Kingdom is grappling with the fall out of the Brexit vote, and even China is struggling with various issues. The United States economy, however, has been strong with dropping unemployment and increasing economic activity.
Unfortunately, data released last week hints that not all is well in America. The Atlanta Federal Reserve branch has revised economic growth forecasts for the 3rd quarter down to 2.4%. Previously, the Atlanta Fed had projected growth of a solid 2.8%.
Worse yet, consumer spending took a plunge in August. This marked the first time that consumer spending has dropped in seven months. For economists and analysts it’s essential to figure out if this drop was a momentary blip, or an emerging trend. For now, answers remain elusive.
Consumers Trimming Spending, But Why?
One of the biggest reasons the Atlanta Fed revised its numbers downwards was because of a drop in consumer spending. For the 3rd quarter, the Fed revised its consumer spending growth downwards from 3.0% to 2.7%.
Consumer spending accounts for nearly 70% of the economy. Even a slight decline in consumer spending growth can curb economic growth. And should consumers start to shut their wallets, it can actually kick off a recession.
For right now, consumers in the United States are continuing to spend at a healthy clip. However, consumer spending did drop by .01% in August. This could just be a temporary stumble, or it could hint at a larger problem. A temporary stumble wouldn’t be surprising given how much consumer spending has surged in recent months.
On the other hand, a more fundamental decline wouldn’t be all that surprising either. The rest of the global economy, by and large, is dealing with slow growth. At some point, the deeper problems in the global economy could cause serious challenges in the United States.
Fed Interest Rate Hike On Hold?
There might be a slight silver lining regarding the decline in consumer spending. It is possible that the Fed will hold off on its rate hike. So far the Fed has suggested that it will hike rates at least once before the year ends. Rate hikes generally deflate financial markets, including stock markets.
If consumer spending does weaken, the Fed might be forced to reconsider such plans. As a result, markets would likely enjoy a bump. Some economists, however, are warning that continued low Fed interest rates could lead to asset bubbles, and eventually one could pop.
Either way, it’s important for every investor, wealthy individual, wealth manager, and anyone else watching over assets to keep a close eye on the United States. Right now, America’s economy is among the strongest in the world. Many other countries are flat out struggling. Should the United States falter, however, it could result in a global recession.