Over-Leveraged Consumers & Corporations Pose The Biggest Threat To the Economy | Neely Tamminga
Mar 7, 2024
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Discover the real state of the US consumer with Neely Tamminga, discussing financial struggles, generational trends, and economic uncertainties. Explore the impact of decreasing tax refunds on spending, labor structure changes, and potential risks of over-leveraged consumers and corporations.
Consumers are segmented based on life stage, income, and demographics, impacting their economic experiences.
Decline in tax refunds and exhaustion in consumer capacity raise concerns about spending trends.
Over-leveraged consumers and businesses pose uncertainties in future spending abilities and debt service capabilities.
Deep dives
Challenges in Finding Jobs
The labor market challenges exist despite the positive perspective portrayed in the media, especially for entry-level positions and internships. Internships are not being filled as historically expected, signaling a shift in demand. C-suite discussions indicate a mismatch between the supply and demand for mid-experience employees.
Consumer State and US Economy
The podcast delves into the true state of the US consumer, questioning if they have truly weathered economic challenges or if the reported resilience is accurate. The guest Neely Timinga highlights the segmentation among consumers based on life stage, income, demographics, and employment status. This nuanced view suggests differing consumer experiences amidst economic changes.
Consumer Spending and Tax Refunds
Consumer spending trends raise concerns as reflected in January retail sales data, indicating potential exhaustion in consumer capacity. The decline in tax refunds compared to previous years may influence consumer spending negatively, impacting overall economic dynamics. The variability in tax refund numbers prompts an examination of consumer behavior and financial implications.
Job Market Dynamics and Data Challenges
The discussion pivots to the job market dynamics, contrasting the optimistic portrayal with the challenges faced in securing employment. Anecdotal evidence and experiences suggest a disconnect with the job market data, attributing lower participation rates and seasonal adjustments to data unreliability. Structural adjustments in calculating job data reflect the impact of significant events on data accuracy and trends.
Monitoring Job Market Trends Through Daily Treasury Statements
Daily treasury statements provide high-frequency data on cash inflows and outflows, offering insights into the economy. However, caution is needed in interpretation due to variations in payment flows based on days of the week, affecting analysis accuracy. Tax receipt data, particularly Federal Unemployment Tax, indicated strength in payroll taxes paid by businesses in January, potentially influenced by states like California facing underfunded payroll taxes, raising concerns about state deficits.
Considerations for the Economic Outlook and Potential Risks
Despite some positive indicators like tax receipts, caution exists regarding potential risks in the consumer and corporate sectors. Approximately 20-30 million over-leveraged consumers and potentially overleveraged businesses pose uncertainties about future spending abilities and debt service capabilities. The lack of clarity on these factors presents challenges in predicting economic trends, emphasizing the need for strategic decision-making and close monitoring of critical data points like tax receipts and JOLTS data.
The media is full of reports that the economy is in fine shape due to a "strong" and "resilient" consumer who has held up much better than expected during the recent years of high inflation and high interest rates.
But has the average consumer truly shrugged all that off?
Or are they in worse shape than we're being told?
For a deep dive into the true state of the US consumer, we'll hear today from Neely Tamminga, researcher, professor and co-founder of the retail consulting firm DISTILL.
Follow Neely on X at @neelytamminga or at her website at https://distilladvisory.com/
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