Confidence and Consumer Spending Momentum

Episode Summary

Executive Summary: Inside Economics returned after vacation with economist Wayne Best of Visa to discuss labor market strength, interest rates, and a new Visa consumer spending momentum index. The panel sees the U.S. consumer as resilient, supported by jobs, savings, and wealth gains, but notes risks from Delta, inflation, and the fading of pandemic supports.

Main Topics: Labor market strength and quits (Priority: 5/5): The hosts highlighted strong job churn, elevated quits, and a surprisingly high consumer labor-market differential as evidence that labor demand remains very strong and unemployment may soon ease. 10-year Treasury yield decline (Priority: 4/5): The group debated why the 10-year yield fell toward 1.36%, with Ryan emphasizing technical factors and Wayne adding Delta-related and global relative-value concerns. Visa’s consumer spending momentum index (SMI) (Priority: 5/5): Wayne explained Visa’s new monthly index measuring how many consumers are spending more versus less, designed as a timely gauge of spending momentum across regions and spending categories. Geographic reshuffling of spending (Priority: 4/5): Discussion focused on how smaller metros initially outperformed during COVID, while larger cities are now rebounding as vaccination improves and urban spending recovers. Pent-up demand and excess savings (Priority: 5/5): The panel debated how much of the estimated excess savings stockpile will be spent versus saved or invested, and whether it will drive a consumption boom. Policy cliffs and consumer risk (Priority: 4/5): They assessed whether expiring forbearance, foreclosure, eviction, and student-loan relief programs could stress households or slow spending, concluding the macro effect is likely manageable but distributionally uneven. Structural change in consumer behavior (Priority: 4/5): Mark argued the post-pandemic consumer may be less willing to spend every dollar earned, with higher saving rates and demographic change implying a more restrained future consumer.

Key Arguments: Strong labor market conditions remain a major support for consumption, with quits, job openings, and the consumer confidence labor-market differential all pointing to tight conditions. The 10-year Treasury yield’s decline is likely driven more by technical market factors and short-term concerns than by a fundamental deterioration in growth. Visa’s SMI is intended to capture spending momentum, not just spending levels, and it correlates strongly with retail sales and PCE. The spending recovery is becoming more geographically balanced: smaller cities led early, but larger cities are now rebounding faster as vaccination and reopening progress. Pent-up demand is real, especially for travel and services, but not all excess savings will be spent; some will flow into housing, equities, bonds, and cash. Expiring government supports may create some delinquencies and distributional hardship, but high home-price appreciation and a stronger labor market should limit systemic damage. The pandemic may have permanently altered consumer behavior toward higher saving and less automatic spending growth than in prior cycles.

Data Points: CoreLogic HPI year-over-year: 15.4% - Chris’s headline housing statistic, used to show continued rapid house-price appreciation. JOLTS quits: 3.604 million - Ryan’s labor market statistic, indicating elevated job switching and churn. Consumer confidence labor-market differential: 43.5 percentage points - Conference Board measure of respondents saying jobs are easy to get minus hard to get. Initial unemployment claims: 373,000 - Chris’s weekly claims figure, slightly above the prior week’s 371,000. Copper price: $4.35 per pound - Mark’s inflation/growth signal, interpreted as consistent with strong global demand and price pressures. 10-year Treasury yield: 1.36% - Ryan’s statistic showing a notable recent decline in long-term rates. Visa SMI, June vs last year: 111.7 - Visa’s new consumer spending momentum index showing more consumers spending more than last year. Consumers increasing spending: 53% - Share of consumers spending more than a year earlier in June. SMI vs June 2019: 108.4 - Skip-year comparison suggesting momentum is still positive relative to pre-pandemic conditions. Metro areas above threshold: 87% of CBSAs above 102 - Geographic evidence that most metropolitan areas showed strong spending momentum. Excess savings estimate: $2.5 trillion - Mark’s estimate of savings accumulated above the no-pandemic baseline. Expected spend-through of excess savings: About one-third by end of 2022 - Mark’s forecast assumption for how much excess savings will be spent. Urban outmigration: About 250,000 more people - Equifax credit-file data showing net movement out of urban cores into suburbs/exurbs/rural areas since the pandemic. New York City outmigration share: About 100,000 - NYC accounted for the largest share of the urban exodus cited. House price appreciation support: 15% rise in house prices - Chris said price gains could help borrowers who were on forbearance by improving their ability to refinance or sell. June employment gain: 850,000 - Referenced as the prior month’s strong payroll growth. Unemployment rate change: 5.8% to 5.9% - June unemployment uptick that surprised the panel. Old job openings-to-unemployed ratio: 1.2 in February 2020 - Wayne cited this as a pre-pandemic comparison for labor market tightness. Typical good level for claims: 250,000 - Mark’s rule-of-thumb benchmark for low/healthy initial claims. End-of-year 10-year yield forecast: 1.57% (Visa); 1.7% (Ryan); 1.9% (Moody's baseline mentioned by Mark) - Different speaker views on where Treasury yields might finish the year.

Pivotal Quotes: "“Removing the friction, removing the friction from a transaction or from people conducting commerce enables additional growth.”" — Wayne Best: Explaining why payment systems matter for economic growth. "“The interesting part of this is that it's very strongly correlated with retail sales, about 87 or 0.87 with PCE.”" — Wayne Best: Describing the statistical validity of Visa’s new consumer spending momentum index. "“I don't know that we can count on the American consumer driving the train to the same degree that they have historically.”" — Mark Zandi: Closing reflection on post-pandemic consumer behavior and saving patterns.

Implications: The outlook remains constructive: consumers are spending, jobs are strong, and savings provide support. But listeners should expect a more uneven, service-led rebound, with risks from Delta, policy expirations, and a structurally less aggressive consumer.