Despite tariffs, stick to inflation, and the lack of key data, the outlook for spending remains bullish, according to the Mastercard Economics Institute. Here with us now at Post9 is chief economist of the Mastercard Economics Institute, Michelle Meyer. It's good to have you back.Welcome. >> Thank you. >> So, what do you guys expect. >> Well, exactly what you said.I mean, the consumer is still very much engaged despite all of these different headlines. They're trying to navigate relative price differentials ...

Economic Concerns - Mohamed El-Erian expresses significant concerns regarding the financial health of low-income consumers and the potential refinancing of substantial debt in the coming years, indicating these as potential pressure points for the economy [1] Low-Income Consumer Spending - Low-income households are experiencing immense financial pressure, leading to reduced spending, which could have a cascading effect on the broader economy. This group has faced rising inflation and increasing debt burdens, with inflation growth outpacing post-tax wage increases since the beginning of the year [1][2] - The total household debt in the U.S. increased by $197 billion in Q3, reaching $18.5 trillion, further exacerbating the financial strain on consumers [1] Employment Market Concerns - There are signs of weakness in the labor market, with October witnessing the worst layoff wave in over two decades. Additionally, concerns about job displacement due to artificial intelligence are growing among the workforce [1] Debt Refinancing Pressures - Both public and private sectors in the U.S. have accumulated significant debt, much of which may need to be refinanced at higher interest rates, posing risks to borrowers. This issue is particularly pronounced in commercial real estate, where a substantial amount of loans obtained at lower rates during the pandemic are maturing [3] - By the end of 2026, over $210 billion in commercial mortgage-backed securities (CMBS) related to office loans will mature, indicating potential refinancing challenges [3] Signs of Borrower Distress - There are increasing signs of borrower distress, with delinquency rates on commercial bank loans steadily rising over the past two years. Additionally, corporate bankruptcies surged to a five-year high this summer [3] Systemic Risk Assessment - Despite these pressures, El-Erian does not foresee a financial or credit crisis akin to past events, suggesting that while there may be economic "accidents," systemic shocks are unlikely. He likens the situation to "cockroaches" that appear in clusters but do not undermine the entire system [4]

Summary of the Conference Call Industry Overview - The report focuses on the dynamics of household balance sheets in Asian economies, particularly in relation to consumer spending and economic recovery in the Asia Pacific region [3][20]. Key Points and Arguments 1. **Consumer Spending and Household Debt**: - The report argues that household debt is not a primary constraint on consumer spending. Instead, weak wage growth is identified as the main factor affecting consumption [6][20]. - It is expected that a recovery in non-tech exports starting early next year will boost wage growth, subsequently enhancing consumer spending [6][20]. 2. **Economic Conditions in Asia**: - Consumer spending has been sluggish across Asia, especially in China and India. The report suggests that limited job creation and weak wage growth are more significant issues than household balance sheet constraints [6][20]. - Trade tensions have negatively impacted non-tech exports, contributing to the slowdown in consumer spending [6][20]. 3. **Household Debt Levels**: - High household debt levels in some developed Asian economies have not led to significant declines in asset prices or deleveraging pressures [6][20]. - The report indicates that household debt as a percentage of GDP has remained stable since the COVID-19 pandemic, particularly in emerging markets excluding China [20][21]. 4. **China's Economic Outlook**: - In China, retail sales growth has slowed to 3% year-on-year, the lowest since the beginning of the year, primarily due to the fading effects of consumption trade-in programs [28][30]. - The importance of real estate in household assets is emphasized, with property accounting for approximately 42% of household assets, which is significantly higher than the 21% from portfolio investments [30][34]. 5. **India's Household Debt**: - India's household debt is considered reasonable, with a ratio of 42% of GDP, which drops to 24% when excluding business loans. The report suggests that consumption slowdown in India is more cyclical rather than structural [45][46]. 6. **Developed Markets in Asia**: - In Japan, household debt has decreased to 62% of GDP, with real wage growth being a critical constraint on consumption. The report anticipates stronger real wage growth in the coming quarters [58][62]. - South Korea is experiencing weak real wage growth and political uncertainty, which has dampened consumer confidence. However, there are signs of recovery in consumption driven by government initiatives [65][66]. 7. **Real Estate Market Dynamics**: - The report highlights that in many Asian economies, household debt is closely tied to real estate markets, with housing debt constituting a significant portion of total household debt [74][92]. - In Australia, household debt is the highest in Asia at 121% of GDP, primarily driven by property debt. Despite high debt levels, the resilience of borrowers is noted [73][74]. Other Important Insights - The report emphasizes that the dynamics of the labor market are crucial for understanding consumer spending trends across the region. A recovery in non-tech exports is expected to positively impact employment and consumption [26][31]. - The report also discusses the potential for policy reforms to enhance consumer confidence and spending, particularly in the context of high precautionary savings and the need for social security reforms in China [31][34]. This summary encapsulates the key insights from the conference call, focusing on the interplay between household balance sheets, consumer spending, and economic conditions across various Asian economies.

Core Viewpoint - Federal Reserve Governor Bowman indicates a perceived weakening in consumer spending and continues to expect two more interest rate cuts by the end of the year [1] Group 1 - The Federal Reserve is observing a decline in consumer spending, which may impact economic growth [1] - Bowman maintains the outlook for two additional interest rate cuts before the year concludes, suggesting a proactive monetary policy response [1]

Group 1 - The current U.S. economy is sending mixed signals, with strong consumer spending and AI investment contrasting with a weak job market [1][4] - Morgan Stanley's data indicates that consumer spending grew nearly 3% in the third quarter, reflecting economic resilience [4] - High-income and high-wealth households disproportionately contribute to total consumer spending, which has recently surged [7] Group 2 - AI-related capital expenditures are significant as they are less sensitive to short-term cyclical fluctuations, representing a long-term investment theme [9] - Evidence suggests a notable slowdown in job creation this year, with rising unemployment and stagnant wage growth indicating a serious labor demand slowdown [10] - Increased consumer spending is primarily focused on automobiles, driven by electric vehicle tax credits and preemptive purchases due to tariffs, which may lead to a spending pullback in the coming months [10] Group 3 - The Federal Reserve faces divergent policy paths depending on economic conditions, with strong economic resilience requiring restrictive policies and weak economic performance necessitating more rate cuts [12] - The experience from 2018-2019 indicates that tariffs have a significant negative impact on U.S. domestic manufacturing, with effects lasting over a year and a lag of about two quarters before the impact is felt [11]

Core Insights - The core inflation measure, the Personal Consumption Expenditures (PCE) price index, rose by 0.3% month-on-month and 2.7% year-on-year in August, while the core PCE, excluding food and energy, increased by 0.2% month-on-month and 2.9% year-on-year, indicating stable inflation data [1][2] - Following the release of the PCE data, U.S. stock markets rebounded after three consecutive days of decline, with the Dow Jones up 0.65%, S&P 500 up 0.59%, and Nasdaq up 0.44% [1] - The consumer confidence index for September was reported at 55.1, the seventh lowest since records began in 1952, reflecting a pessimistic outlook among consumers, particularly among lower-income households [3] Economic Indicators - Initial jobless claims fell by 14,000 to 218,000, the lowest since mid-July, indicating a resilient labor market [1] - The second quarter GDP growth was revised up to an annualized rate of 3.8%, significantly higher than the previous estimate of 3.3%, driven by strong consumer spending and a decline in imports [1] - Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased by 0.6% in August, surpassing expectations of 0.5% [3] Consumer Sentiment - A significant 44% of survey respondents reported that high prices are eroding their financial situation, the highest proportion in the past year [3] - The consumer sentiment is primarily driven by high-income households, while lower-income families are struggling with rising living costs [3] - Economists predict a notable slowdown in consumer spending growth by the end of the year due to the impact of rising prices [3][4] Market Outlook - The Federal Reserve is likely to continue its interest rate cuts, with differing views among officials regarding the pace and extent of these cuts [2] - The wealth effect, driven by stock and housing market performance, is increasingly influencing consumer spending, posing risks if these markets experience volatility [4]

Core Insights - US consumer spending in August showed strong growth for the second consecutive month, increasing by 0.4% after inflation adjustment, surpassing the expected 0.2% [1][2] - The core Personal Consumption Expenditures (PCE) price index rose by 0.2% month-on-month, maintaining a year-on-year increase of 2.9%, significantly above the Federal Reserve's 2% target [1][3][5] Consumer Spending Breakdown - The increase in consumer spending was primarily driven by goods consumption, which rose by 0.7% month-on-month, indicating strong purchasing willingness for non-essential items such as furniture, clothing, and entertainment [2][4] - In contrast, the growth in service spending was more moderate, with indications that high-income consumers continued to spend despite potential price increases due to tariffs [2][6] Inflation and Economic Outlook - Persistent inflation remains a significant challenge for the Federal Reserve, with the core PCE year-on-year growth stabilizing at 2.9%, well above the target [3][5] - The report highlighted that service costs, particularly in financial services, dining, and transportation, were major contributors to overall price increases, while goods prices showed weakness [6][8] Market Reactions - Following the data release, US stock futures showed little volatility, with the Nasdaq 100 futures maintaining a gain of approximately 0.3% [10] - The US dollar index experienced a slight decline, currently reported at 98.33 [10] - The yield on the 10-year US Treasury bond decreased to 4.158%, while spot gold prices increased by about $6, reaching $3755.53 per ounce [14]

Core Insights - Macy's stock has increased by 37% over the past month, but its operating performance and financial situation appear poor, with significant risks tied to economic downturns and reliance on discretionary spending [2] Financial Performance - In Q2 2025, Macy's reported revenue of $5.6 billion, a 4% decrease year-over-year, with net income at $210 million, down 22%, and adjusted EBITDA at $480 million, also lower than the previous year [3] - Free cash flow decreased to $120 million due to declining sales trends and increased promotional efforts [3] - The balance sheet shows $3.9 billion in debt against $800 million in cash, limiting financial flexibility [3] Valuation - Macy's trades at a price-to-earnings ratio of 8.1, significantly lower than the S&P 500's 23.9, and has a free cash flow multiple of 17.8 compared to the S&P 500's 21 [4] Growth Trends - Over the last three years, Macy's revenues have declined at an average annual rate of -4.4%, while the S&P 500 grew at 5.3% [5] - In the past twelve months, sales fell by -3.8% from $24 billion to $23 billion, with a recent quarterly revenue decrease of -4.1% year-over-year to $4.8 billion [5] Profitability - Macy's operating income for the past year was $879 million, yielding a 3.9% margin, with net income at $558 million and a 2.4% margin, all below S&P 500 averages [6] Financial Stability - Macy's has a high debt-to-equity ratio of 124.9%, significantly above the S&P 500 average of 20.5%, and cash constitutes only 5.8% of total assets compared to the index's 7.2% [7] Economic Resilience - Macy's stock has underperformed the S&P 500 during economic downturns, with a 71.7% drop during the 2022 inflation crisis compared to a 25.4% decline in the S&P 500 [8] - During the 2020 Covid pandemic, Macy's stock fell 75.5%, while the S&P 500 experienced a peak-to-trough decline of 33.9% [8] Investment Appeal - Despite low valuation, Macy's combination of weak growth and profitability makes the stock less appealing to investors [9]

Core Insights - Goldman Sachs has revised its forecast for U.S. GDP growth in Q3 down by 0.2 percentage points to 1.6% due to unexpectedly large expansion in the trade deficit in July [8] - The July core Personal Consumption Expenditures (PCE) price index rose 0.27% month-on-month and 2.88% year-on-year, aligning with previous estimates and market expectations [3] - The report highlights a significant increase in the U.S. goods trade deficit, which expanded by $18.7 billion to $103.6 billion, exceeding analyst expectations [6] Economic Indicators - Personal income in July increased by 0.4%, supported by steady growth in employment compensation, owner income, and rental income [6] - Personal consumption expenditures showed strong performance, rising by 0.5% month-on-month, slightly above Goldman Sachs' expectations [6] - The actual personal spending, adjusted for inflation, grew by 0.3%, with notable increases in goods consumption (0.9%) and a slight rise in services spending (0.1%) [6] Trade Data Analysis - The significant increase in the trade deficit was primarily driven by a $18.6 billion rise in imports, while exports saw a slight decline of $1 billion [6] - The surge in imports is believed to be a response to businesses stocking up ahead of new tariff policies set to take effect in August [6] - Notable increases in imports were seen in industrial goods and capital goods, which rose by $12.3 billion and $4.4 billion, respectively [6] Inflation and Domestic Demand - Despite the trade data being weaker than expected, core inflation and consumption expenditure data indicate that the U.S. economy is maintaining a moderate expansion [8] - The domestic final sales indicator, which measures domestic demand strength, is expected to continue showing positive growth, reflecting the underlying resilience of the U.S. economy [8]

Market Performance - US stock markets collectively declined, with major indices falling on August 30, led by technology stocks like Nvidia, resulting in a drop of over 1% for the Nasdaq index [1][2] - The closing figures were as follows: Dow Jones Industrial Average at 45,544.88, down 0.20%; S&P 500 at 6,460.26, down 0.64%; and Nasdaq at 21,455.55, down 1.15% [1][2] - For the week, the Dow Jones fell 0.19%, S&P 500 down 0.1%, and Nasdaq down 0.19%, while in August, the Dow Jones rose 3.2%, S&P 500 increased by 1.91%, and Nasdaq grew by 1.58% [1] Chinese Stocks - Despite the overall decline in US markets, the Nasdaq Golden Dragon China Index rose by 1.55% [2] - Notable Chinese stocks included Alibaba, which surged nearly 13%, and Daqo New Energy, which increased by over 11% [2] - Other rising stocks included iQIYI (up over 5%) and Baidu, Huya, and JinkoSolar (each up over 4%) [2] Alibaba Financial Results - Alibaba Group reported Q1 FY2026 revenue of RMB 247.65 billion, a 2% year-over-year increase, with a 10% increase when excluding disposed businesses [3] - Net profit reached RMB 42.38 billion, marking a 76% year-over-year growth [3] - The company noted significant growth in its instant retail business, with monthly active consumers on the Taobao app increasing by 25% year-over-year [3] Inflation Indicators - The US core PCE price index rose by 2.9% year-over-year in July, indicating inflationary pressures [4][6] - The overall PCE price index increased by 2.6% year-over-year, with a month-over-month rise of 0.2% [6] - Consumer spending, which constitutes over two-thirds of US economic activity, grew by 0.5% month-over-month, reflecting consumer resilience despite rising prices [7] Oil Market - US oil prices fell nearly 1%, with WTI crude settling at $64.01 per barrel and Brent crude at $67.46 per barrel [11] - The US recorded a historic high in oil production at 13.58 million barrels per day in June, contributing to a total liquid fuel production peak of 21.1 million barrels per day [11] - President Trump indicated that oil futures prices might soon drop below $60 per barrel [12] Precious Metals - International precious metal futures saw a general increase, with COMEX gold futures rising by 1.20% to $3,516.10 per ounce and silver futures up by 2.64% to $40.75 per ounce [14] - Weak economic data in the US supported the rise in gold prices, with the Michigan consumer sentiment index falling below expectations [14]