Last week’s unemployment claims came as a bit of a shock to the market, with claims rising by more than a quarter million.
That’s the biggest single-week drop in four years!
The news has investors to wonder whether consumers might be “spooked” by the tough job market, which would lead to a spending slowdown just in time for the holiday season.
So today, I thought we’d take a closer look at consumer spending … and show you why I’m expecting America’s resilient economy to keep driving forward.
Let’s dive in:
Video transcript:
Welcome to Moneyball Economics. I’m your host, Andrew Zatlin.
Today I’d like to talk a little bit about the US consumer because wherever the US consumer goes, the economy goes, and wherever the economy goes, the stock market goes.
So what’s going on right now with the US consumer?
There is going to be a snapshot this week in the form of retail spending. We’re going to get some insight into whether consumers are leaning in or leaning back. If you’re with the consensus, you think they’re leaning back, the consensus view is that on a month-over-month basis, we’ll see 0.2% growth, which is basically nothing. That’s a sign that the consumer is scared and pulling back.
I’m a little bit more optimistic at 0.5% and I’ll explain why in a minute, but let’s understand why consensus is worried.
They’re worried because we’re seeing a lot of signals say that consumers are under a lot of strain…
For example, bankruptcies. The number of people filing for bankruptcies is up dramatically. We’re not talking about chapter 13 bankruptcies. That’s the form that individuals can pursue that says, “I can pay off the debt. I just need a little bit more time.” We’re talking chapter seven bankruptcies.
Chapter seven bankruptcies are the biggest for individuals and on a year over year basis, they’re up 17%. That’s a big number. It’s the biggest level we’ve seen since COVID five years ago. At the same time, another sign of consumer strain is in the form of the ability to pay off your credit card debt. Basically, people who are 90 days or more delinquent in paying off their debt is rising.
So does this mean we should be worried and concerned? The answer is no, not at all. Consumer spending may be slowing down, but we’re not seeing signs of a recession.
Signs that should worry us. For example, let’s talk bankruptcies.
Yes, bankruptcies are up to the highest level since COVID, but they’re still freakishly low. You go back to pre-COVID, we’re 20, 30, 40% lower than we ever have been. The level of bankruptcies very, very low, and in fact, it’s improving that 17% year over year. It was 24% earlier this year:
So in fact, the situation is not great, but it’s nothing to be worried about. It’s happening on the margins, and in fact, it’s exactly what we would expect to see. When you have interest rates high-ish for a long period of time, this is the collateral damage and guess what? We’re about to see interest rates get cut. So we’re at peak pain in my opinion.
When I want to know what’s going on with the consumer, I look at a variety of data points.
I like to look at things that are heavily discretionary and are heavily comprehensive.
Retail’s a modeled number. I like to look at other data points and I want to share one with you today because it’s also going to give you a stock idea. I’m talking about the number of airline travelers, air travelers as measured by the TSA…
Anytime someone goes through security, they’re counted. This data is published daily. What’s interesting is last year, again, we were still recovering from COVID in 2024, still growth. Last year you had growth at about 8%. Consumers were out and about spending money. Businesses were spending money. A lot of air travel.
Fast forward and that starts to stumble because let’s face it, Trump starts creating uncertainty. Economic uncertainty makes businesses pull back on business. Travel makes households pull back on discretionary travel, and then we’ve got deportation concerns. As a result, international travel starts to pull back.
So you can see in these numbers that last year:
In 2024, that 8% year over year growth suddenly comes down. Not only does it drop down to 1%, it contracts in the springtime, fewer people traveling versus last year and then starting a couple months ago as summer vacations kind of wound down, people get back to work. We’re starting to see an expansion again.
Over the past two months, there are more travelers going through the airports than in the prior year. Now, it’s not that 8% super level, but give it time. It’s at 2% and rising. This is something that I look at to say on the one hand because it’s lower than 8% last year, it means we still have a lot of room to go. It means the consumer and companies are not out there throwing money away around 0.2% retail. I think it’s going to be higher, but it’s not 1%, but it is sign of life.
It is sign of a recovery, and that’s what we want to see. Now, here’s where it gets interesting…
Take a look at these airline stocks:
You’ll see the mirror exactly what was happening in the springtime and today you see that the stocks, well, they came down pretty dramatically as air travel slowed down, and that’s the way it should be. You’ve got less money coming in, and as soon as you had more travelers and more money coming in, the stocks are perking up again. Wouldn’t be surprised if they go any higher telltale sign.
Now take a look at what’s going on with Southwest Airlines:
They haven’t budged. They didn’t respond to this nonsense. Why? Well, quite frankly, they’re immune, for example, to what’s going on in the international travel space. Southwest Airlines, purely domestic. They don’t get affected by what’s going on with international travel. They also tend not to be used by corporate travel as well.
This is basically a sign that consumer spending as reflected in air travel with a domestic airline. It’s been Steady Eddie the whole way.
This is why I still feel confident about the US consumer. They’re getting a paycheck. They’re spending the paycheck. Inflation isn’t eating up very much of that paycheck, so there’s going to be more positive than negative news. I believe this week the fed’s going to cut rates, and so it’s going to be interesting. I think the decision’s made.
It’s going to be interesting what happens with the retail number this week because if it comes out and is negative as consensus thinks it will be, if it’s kind of pessimistic, well, everyone’s going to get excited because this rate cut this week is going to be followed by another one next month. On the other hand, if the consumer’s hanging in there, well, people might be a little disappointed. We’ll find out what happens.
In the meantime, we’re in it to win it.
Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics