John Norris (00:30):
Well, hello again, everybody. This is John Norris with Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement (00:36):
Hey, John. How are you doing?
John Norris (00:36):
Sam, I’m doing very well, very well indeed. I hope you are too.
Sam Clement (00:40):
I can’t complain right now. It’s getting warm around here.
John Norris (00:43):
Well, there you have it—people are getting a little spring fever here in central Alabama. However, I think there’s a group of people, and we are all members of it, who might not be feeling as great as they’d like to. And that group is, for all intents and purposes, the U.S. consumer.
Sam Clement (01:00):
We’ve talked about this on and off for a while—the discrepancies between economic data and how people actually feel. At times, I’ve said I think consumers can be a little too pessimistic, but overall, the economic data has been pretty robust. I mean, for the most part, it’s been solid. There are these wide discrepancies, though, and I’m not saying every data point has been great, but unemployment is still really low, jobless claims are still low, yet consumers remain quite negative—and have been for some time.
John Norris (01:33):
It has been confounding, really, over the last 12 to 18 months. We’ve seen major discrepancies between household and establishment data within employment reports, along with differing perceptions of the country’s direction compared to what the government reports about the economy. It just doesn’t all add up. I mean, there are things I’ve either personally experienced or read about—like how 90% of Americans are concerned about their grocery bills, or that a significant percentage of Americans don’t even have $1,000 set aside for a rainy day emergency.
So, you really get the sense that a vast majority, or at least a large plurality, of Americans are living paycheck to paycheck. And the economic numbers coming out of Washington seem heavily skewed—either favoring businesses or the people who own them—without really reflecting the experience of the average person.
Sam Clement (02:38):
I think that’s exactly right. I’d also add that the economic data isn’t even fully reflecting the top 1% or top 10%. More and more data shows that we are a consumer-driven economy, but nearly 50% of consumption now comes from the top 10%. That alone significantly skews the data. The average American isn’t in that top 10%, yet that group accounts for such a large share of GDP and consumption.
We’ve also discussed how inflation affects different groups. Inflation benefits asset holders and borrowers, but its impact is skewed—some people benefit while others are punished by it.
John Norris (03:30):
Yeah, if you have no revolving-rate debt and you hold 100% equity in a commodities portfolio, then sure—bring on inflation. However, if you have credit card debt and no investments in the market, inflation is painful.
Sam Clement (03:45):
Exactly. Many of the wealthy—if they have mortgages at all—locked in rates at 2%, so inflation actually benefits them.
John Norris (03:56):
Yeah, fixed-rate debt is a different story.
Sam Clement (03:56):
You hear people saying, “I’ll never pay off my mortgage—I don’t want to!”
John Norris (04:00):
Right! And their assets continue to appreciate. You’re talking to someone who gets it.
Sam Clement (04:02):
Same here. This just highlights how skewed things are. Food inflation, for instance, hasn’t affected the top 10% nearly as much as it has impacted lower-income households.
John Norris (04:14):
That’s exactly what we’re seeing, which is why I’ve contended for a while that the country’s biggest issues aren’t economic, but societal. If the top 10% keeps spending at a high rate, the economy can continue to grow even if the rest of the population struggles. But we’re seeing enough concerning trends to suggest that it’s not just anecdotal. The number of restaurant closures, for example—Hooters exploring bankruptcy, TGI Fridays shutting down locations, Denny’s closing restaurants left and right, Cracker Barrel overhauling its menu to attract customers—these aren’t high-end dining spots. They’ve historically been staples of middle-class dining.
Sam Clement (05:40):
And some of those places cater to the lower end of the middle class as well.
John Norris (05:44):
It all depends on how you define middle class. But in my mind, middle class encompasses the second and third quartiles of earners.
Sam Clement (06:04):
On the flip side, high-end restaurants seem to be thriving. Some new places have waitlists stretching six weeks or longer—even a year in some cases. That says something.
John Norris (06:25):
Absolutely. Try getting a reservation at Bottega here in town—it’s weeks out. The same goes for places like Chez Fonfon or Automatic Seafood. Meanwhile, other restaurants are struggling just to stay afloat. Last year, I wrote that I’d know the economy was in real trouble when I walked into a Cheesecake Factory at 5:30 p.m. on a Saturday and found it empty. So far, that hasn’t happened.
Sam Clement (07:05):
Yeah, people still flock there.
John Norris (07:08):
Exactly! But looking at recent data, I’m starting to believe the U.S. consumer is running out of steam. The ultra-wealthy are still spending, but indicators like the Conference Board’s consumer confidence index show a significant decline. We’re also seeing the personal savings rate drop to 3.3%, which isn’t an all-time low but is certainly concerning.
Sam Clement (08:09):
We’re also seeing rising delinquencies in auto loans, FHA loans, and credit cards. These indicators suggest that lower-income consumers are under significant financial strain.
John Norris (11:38):
And then there’s the issue of government inefficiency. Musk and others have pointed out substantial waste in government spending, and while addressing that is necessary in the long term, it could cause short-term economic pain. Cutting inefficiencies means cutting paychecks, and that money has to come from somewhere. I wrote about this in last week’s Common Cents.
Sam Clement (14:57):
Exactly. Once we get past wasteful spending cuts, reductions will start hitting programs that directly impact lower-income households.
John Norris (20:53):
At some point, we have to reckon with the fact that decent growth in the top 10% has masked stagnation for the bottom 90%. If the top 10% pulls back just a little, the ripple effects could be significant.
But to be clear, we’re not predicting doom and gloom. This isn’t 2008 or 2020. We just believe the economy will cool off for a bit. That being said, we’d love to hear from you. You can reach us at Trading Perspectives@oakworth.com or leave a review. For more insights, visit oakworth.com and explore our Thought Leadership section.
Alright, Sam, any final thoughts?
Sam Clement (21:30):
That’s all I’ve got.
John Norris (21:32):
Same here. Y’all take care.