U.S. economy looks like 'mixed picture' despite resilience from consumer, says Citi's Nathan Sheets

Joining us this morning, cities a global Chief economist. As we said, Nathan Cheese is with us. Happy Friday, Nathan, Happy Friday. You guys were pretty resolute and sticking to your house view even with some of these inflation surprises and the swings in cut expectations. What grounds you at this moment? You know, at the moment I think our, our U.S. team remains quite concerned about the outlook for the US economy. My view is that, you know it’s a pretty mixed picture. On the one hand, we continue to see a fair amount of resilience in the consumer. On the other hand, some of the survey data that we’ve had of late have been a bit softer. You’ve seen that in the ISM, the NFIB survey which is small firms the PM is. So some of the some of the recent data are pointing to a bit of softening and you know where the economy goes from here I think is very much open, open to debate, right. We keep coming back to this and I don’t, I don’t want to say it’s a tired topic, but this crack at the lower cohort or consumers who are more price sensitive, who might not have exposure to investments in equities, what do we make of that that demo right now, this is an issue that we’ve been following for the last 12 or 18 months and it is really quite clear that the upper half of the income distribution balance sheets are just very strong, a lot of power there. But the lower half of the income distribution, we are seeing some cracks in their reason for concerns. We’re seeing rising credit card outstandings and delinquencies there, some poor performance on various kinds of of subprime loans and the excess savings was available early in the pandemic has largely been depleted. And so I think it’s an open issue as to whether these higher rates are starting to bite increasingly on some of these consumers. And maybe that’s driving this narrative that we’ve heard during the earnings season about a more cautious U.S. consumer. I think it’s primarily in the bottom half of the income distribution. We’ve heard it from so many different companies, Nathan. It’s not just the likes of a of a McDonald’s which may you know focus on a lower end consumer, but we’ve also heard it from an LVMH, we’ve heard it from Starbucks, we’ve heard it from a host of companies, even Walmart, you know when they’re talking about household incomes north of 100,000 increasingly coming to Walmart you get the sense of people are are very price sensitive. At what point do you start looking at data and which data do you look at specifically to gauge whether or not the consumer is being hit on a broader basis? I think the best series that we’ve got and even that is a relatively noisy read, it’s when I’m tracking is the overall household savings rate. And it is starting to tell this story that you were describing of a softening consumer and maybe a bit of an overextension in the consumer sector more clearly than it was 6 or 12 months ago. And specifically over the last 20 years, the US household savings rate has averaged at about 5 and a half, 5 1/4% somewhere in that in that neighborhood a little over over 5. And in March which is last reading we got on it, it had fallen to 3.2%. So I think we’re starting maybe to see some evidence that the US consumer is, is, is reaching and I think particularly the spending on services has remained very strong and I’ve been expecting some normalization there, a little bit of overall softening in the consumer and some rotation back into goods. I’ve been expecting that for some time. The services data for Q1 at any end of April were strong, but that’s something I’m watching closely.