There were a number of factors behind this phenomenon: the rise of the two-income family, a declining savings rate, a significant rise in government transfer payments and a multi-decade expansion in household credit. But these factors no longer appear to be tailwinds to consumption.
For instance, the rise of women in the workforce enabled many households to deflect the impact of stagnant real wage growth. Unfortunately, this rise seems to have run its course. Between 2000 and 2014, female labor market participation declined to 56 percent from 59 percent, and there are few signs of its imminent recovery.
Meanwhile, though the savings rate has rebounded from last decade’s lows, it remains well below the historical average and likely has further to rise given an aging population that needs to fund a longer retirement.
At the same time, given the increasing burden that an aging population will place on the federal government, the trend of transfer payments flattering consumption probably isn’t sustainable. Finally, it’s unlikely that the typical U.S. family can return to its pre-crisis borrowing habits, considering that consumer debt-to-disposable income levels are still relatively high from a historical perspective.
Looking forward, this changing landscape means consumption is likely to remain modest, at least as compared to the post-WWII norm. In response, one segment of the market may prove vulnerable: U.S. consumer stocks, which have been outperforming the broader market for a number of years. Their outperformance may be difficult to maintain in an environment in which U.S. consumers struggle to regain their old swagger.
Source: The Hangover: The Rise and Fall of the U.S. Consumer
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog.