Some parts of the US economy, like manufacturing, are struggling. Worries about the consumer are overdone, but there are some vulnerabilities.

A deceleration in inflation will support gains in real disposable income and, by extension, consumption while reducing the odds of a significant rise in delinquency rates, the company said in a research briefing.

Weaker gains in inflation throughout the second quarter (Q2) this year translated into larger monthly gains in real income, and as a result, renewed vigour in consumer spending, even as consumer sentiment worsened. Consumer spending is on track to increase by 2 per cent on an annualised basis in Q2, stronger than that seen during the first three months of the year.

The recent rise in the unemployment rate is not sending warning signs, with more than half of the increase since the start of the year attributed to a growing labour supply, while job losers have declined.

Labor demand is slowing, but companies are not laying off workers in large numbers, which reduces the odds of a negative feedback loop of rising unemployment leading to income loss, reduction in spending, and more layoffs, noted Oxford Economics.

Near-term recession risks did not change markedly in June from their lows last month. Weakness remains concentrated in consumer sentiment and building permits, and neither should be a cause for concern of an impending recession, it added.

Fibre2Fashion News Desk (DS)