Since banks kicked off the earnings season for U.S. stocks, earnings reports from numerous companies have revealed signals that “the financial health of U.S. households and consumer demand remain healthy”, “touting” the strength of the U.S. consumer, and trying to ease fears of a recession. For example, Procter & Gamble (PG.US), which owns brands such as Tide, Help and Pampers, pointed out that consumers are starting to buy premium brand products; Bank of America (BAC.US) and credit card giant American Express (AXP.US) also said, Consumer demand for travel is strong.
Business executives think U.S. consumer demand will remain strong
The state of the U.S. consumer, which accounts for about two-thirds of the U.S. economy, is in the spotlight, but company executives and analysts have disagreed in recent weeks. Executives expressed optimism that consumer demand is strong and will continue to do so.
Banks and homeware companies to luxury goods companies have pointed to customers continuing to buy despite rising prices.
“Looking at our credit card spending data, we see a strong recovery in travel, entertainment and dining,” Bank of America CEO Brian Moynihan said last week, noting that even taking into account the $1.9 trillion U.S. rescue package in March last year Stimulus impact, spending in March 2022 was comparable to the same period in 2021, up 13% in dollar terms, and a 7.4% increase in the number of transactions, a nice increase in both metrics.
L'Oreal CEO Nicolas Hieronimus also pointed out on April 19 that the global beauty market continued to maintain a growth trend in the first quarter, and consumer buying behavior was not affected by inflation.
Average hourly earnings rose 5.6% year-over-year in March, the highest increase since May 2020, even though wages in the U.S. have generally not kept pace with inflation. U.S. household balance sheets have remained healthy, with household debt service ratios (the ratio of debt payments to disposable income) well below historical averages, supported by growth in the housing and stock markets.
Economists see a possible U.S. recession
In stark contrast to the optimism of public companies, economists are less optimistic about the economic outlook. Economists see a 27.5 percent chance of a U.S. recession next year, up from 20 percent in March, according to a survey in early April.
The fastest inflation since 1981, fears of a more aggressive monetary policy from the Federal Reserve, still-fragile supply chains and the Russia-Ukraine war have all added to concerns about the U.S. economy's ability to sustain solid growth. Current market forecasts are that the Fed will raise its benchmark interest rate by half a percentage point next week.
Sarah House, an economist at Wells Fargo, believes the U.S. economy will face problems next year, such as higher interest rates, slower labor demand, and less massive fiscal support.
She also noted that in the second half of 2023 and 2024, “headwinds” gather, and some effects may be too strong for the U.S. economy to withstand.
Listed companies cautious about forward guidance
Overall, U.S. stocks are on track to beat earnings estimates by 7% in the first quarter, and about 75% of S&P 500 companies are likely to beat estimates, according to data compiled by Credit Suisse. If the current pace of growth continues, profits are expected to rise 12% this year compared to the same period last year.
Chris Gaffney, president of global markets at TIAA Bank, said: “In forward guidance, public companies are trying to figure out where we are and where we are going, but it's really hard to figure out these issues right now, so they're holding on to forward guidance. Be cautious.”
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