Earnings, economic data says consumer is still in control of economy

Since late last year, the case for a 2023 recession has been that consumers would run out of spending power following a post-pandemic spending spree. That narrative has lasted so long that it’s now the predicate of predictions for a 2024 downturn, after no 2023 dip materialized.

But those predictions look shakier after second-quarter profit reports came in, with companies including Amazon, Walmart and Home Depot beating profit forecasts. The case for the consumer is also bolstered by a range of other recent consumer statistics, from deposit levels at big financial institutions like Bank of America to GM car sales trends. They present a picture of the consumer economy that shows real incomes rising as inflation wanes, consumers still holding onto most of the extra savings they banked during Covid, and sectors including automobiles and services picking up the baton of consumer spending as growth in furniture, appliances and apparel remains weak after the Covid boom in goods purchasing. 

“People were expecting a recession by now but the consumer has been resilient,” said Arun Sundaram, a consumer-stock analyst at CFRA Research. “People thought spending would fall off a cliff and it didn’t happen.” 

Indeed, the data point to rebounds in a series of economic stats that did make the case that a recession was likely roughly a year ago, in the third quarter of 2022. All of the data has improved this year, led by the steep decline in inflation. After the Census Bureau reported July retail sales rose 0.7%, both Moody’s and the Atlanta Federal Reserve Bank raised their real-time tracking forecast for third-quarter growth this year.

The five big recession arguments pinned on the consumer haven’t played out yet. Here’s why.