Piper Sandler chief global economist Nancy Lazar said Tuesday that she described the economic backdrop over the past year as a “washout” given the U.S. economy’s trajectory. economy.
“We went up very, very fast, and now we’re coming down, relatively fast, not too fast, but we’re really slowing down sharply,” the economist toldmorning with maria” Tuesday.
One reason for these measures, she explained, is the “fiscal cliff” that is taking place now.
“More and more consumers are draining their savings,” Lazar noted, noting that personal savings rateas a percentage of disposable income, fell to 4.4% in April, the lowest level since 2008.
Total savings fell to $815 billion. For some, including Lazar, the drop is a red flag for consumer spending, which accounts for 70% Gross Domestic Product (GDP).
Lazar believes that while Americans have excess cash and are using it all the time, it’s important to look at the state of the economy as a whole.
“Right now the real income is going down,” she told the host Maria Bartiromo“If you take their nominal income growth rate, which is about 4%, and adjust for inflation, real incomes are down a massive 4% year over year. That’s why they have to tap into their savings.”
inflation near a 40-year high.
The Labor Department said earlier this month that the consumer price index, a broad measure of the price of everyday items including gasoline, groceries and rent, rose 8.3% in April from a year earlier, down from a record 8.5% increase in March. Prices rose 0.3% in the month from March.
Those figures were above the 8.1% overall and 0.2% monthly growth forecast by economists at Refinitiv.
Lazar also noted that consumer net worth, including savings, “is going down because we’re seeing disruption in both the stock market and the bond market.”
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Markets have experienced a lot of volatility in recent weeks amid fresh concerns about an economic slowdown.
Stocks have had a tough few weeks in anticipation and in the weeks to come half a point by the Federal Reserve. This is the second of several rate hikes expected this year as the central bank seeks to tackle soaring inflation.
“Overall, the two biggest drivers of consumer spending are their core income, which is actually going down right now, and second, net worth is also going down,” Lazar noted.
“So consumer spending in the second quarter will be good, about 3.5% to 4%, but it does continue to move lower, like closer to 1%, as the year goes on.”
Lazar provided this insight three days before the Labor Department releases May employment data.
The economist said she expects companies to continue laying off workers, warning that jobless claims are “on the rise.”
“It will take time for Fed tightening, global bond yields or oil prices to affect the economy,” she noted.
“It will take about a year for these factors to really start to change behavior for a sustained slowdown,” she continued, noting that “interest rates and oil have been up for over a year now, and they’re showing signs of rising in energy. on.”
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Oil prices were higher on Tuesday, with July Brent crude futures up about 2% to $124 a barrel and U.S. West Texas Intermediate for July delivery also up about 2% to around $117 a barrel.
Lazar noted that “we are only down about a quarter amid the slowdown domestically and internationally” and warned that employment and wage growth “will get weaker” as corporate profits are now falling .
“So we’re at an important inflection point where these job gains will start to slow, putting more downward pressure on consumer spending,” she continued.
Lazar believes that this slowdown is still a year away, “because those long-term leading indicators, interest rates and oil, are only now starting to affect the economy.”
Suzanne O’Halloran of FOX Business contributed to this report.