Despite lacklustre sentiment, Americans have not stopped spending. Consumption is expected to have grown at a solid 3% ann. pace in the third quarter, supporting continued earnings growth for U.S. companies.
If the U.S. economy were a pop star, it might be peak Taylor Swift. On nearly every major measure of economic health, the economy is in great shape and far ahead of its developed market peers. Real GDP is growing solidly, inflation is approaching the Fed’s 2% target and job growth has been robust even with a sub-4.5% unemployment rate for the last 3 years.
Yet people feel quite differently about the economy from how it’s objectively performing. Consumer confidence registered 98.7 in September, well below its 122-135 range prior to the pandemic and its peak of 145 in the summer of 2000. Why don’t Americans feel better?
Many households may not feel like they are doing as well as they should be given a strong economy.
Low-income households typically have meagre investment nest eggs—roughly 50% of households make below $50K in after-tax income1. As such, tremendous gains in equity investments and investment income over the last few years have disproportionately benefitted wealthier households.
However, real estate has been a boon for many Americans. U.S. homeownership is at 65%, the highest since 2011 (excl. pandemic distortions). As such, despite significant gains for the wealthy, the bottom 50% have still seen their net worth nearly double since the fourth quarter of 2019 (see chart).
Inflation is down, but sticker shock persists.
Consumers don’t think in terms of year-over-year changes – they think in terms of price levels, after-tax income and the money left over after they’ve paid all their essential bills. After adjusting for inflation, low-income households (<$60K) got less goods and services for their buck from mid-2021 through mid-20232.
Food in particular has been a sore subject. Spending on off-premises food and beverage consumption has grown a cumulative 23% since mid-2020, but adjusting for inflation amounts to just 2% of real growth. Similar increases in essential goods and services (i.e. insurance, rent and interest) may explain why inflation uncertainty is still elevated for those making below $50K3.
Consumers are slowly getting their purchasing power back, low-income inflation-adjusted spending recently returned to mid-2021 levels, but it’s likely going to take more time and disinflation progress for sentiment to turn.
Keeping emotion out of investments.
As we show in the Guide to the Markets, political affiliation can greatly influence views on the economy. Considering this year’s presidential election and the fragmentation of the news environment, it’s no wonder why consumers may feel quite differently amongst themselves.
Despite lacklustre sentiment, Americans have not stopped spending. Consumption is expected to have grown at a solid 3% ann. pace in the third quarter, supporting continued earnings growth for U.S. companies. The economy is by no means perfect, but there are still plenty signals of healthy and improving fundamentals that should lift sentiment over time and contribute to continued investment gains. For investors, large divergences in economic perceptions also underscore the importance of keeping emotion out of investing, during and beyond political elections.
Wealth has surged since the pandemic, especially for the bottom 50%
% change in household net worth, from 4Q 2019 to 2Q 2024
Source: Federal Reserve Distributional Financial Accounts, J.P. Morgan Asset Management. Data are as of October 25, 2024.
JPMorgan American Investment Trust | JAM
JAM employs a flexible, bottom-up approach to seek out high conviction growth and value ideas in a portfolio of approximately 40 stocks. The portfolio’s value ideas are focused on quality franchises that exhibit consistent and sustainable cash flows, while growth ideas are focused on companies with robust yet underappreciated growth potential.
Source JP Morgan Asset Management
1 Consumer Expenditure Survey
2 Hoke, Sinem Hacioglu, Leo Feler, and Jack Chylak (2024). "A Better Way of Understanding the US Consumer: Decomposing Retail Sales by Household Income," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, October 11, 2024.
3 FRB of New York, Survey of Consumer Expectations. See Guide to the Markets – On the Bench, page 27 “Inflation expectations”.
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The Company aims to achieve capital growth from North American investments by outperformance of the Company's benchmark, the S&P500 Index, with net dividends reinvested, expressed in sterling terms. The Company emphasises capital growth rather than income and when appropriate may have exposure to smaller capitalisation companies. The Company's gearing policy is to operate within a range of 5% net cash to 20% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company.
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