Consumer spending, a metric used by economists to gauge how the economy is impacting the average person, is on the rise, according to Reuters.
Increased consumer spending usually means increased consumer confidence and/or wealth, presumably due to a perceived strong economy. Other metrics, such as the stock market, have been on record-setting highs in the past few weeks and some retailers — including Walmart, Fiat Chrysler and AT&T, according to CNN Money — have been giving bonuses or raises to their employees in the wake of higher than expected profit numbers from the recent tax overhaul that gives breaks to big businesses. Many individuals are also expecting to see increased tax returns from the Republican-driven tax code changes signed by President Donald Trump in mid-December 2017. In this case, however, increased consumer spending comes with certain dangers. While consumer spending is on the rise, savings have hit a ten-year low, also according to Reuters, placing them around where they were just before the great recession started in 2008.
This could be bad news for banks, many of whom have been hit hard by the same tax code changes that benefited corporations and retailers. This is likely to be a one-time setback as the banks adjust to the new tax code, but in many cases it is a significant setback that will be harder to recover from with the decreased funds that can come from decreased savings.
There’s also the fact that many are skeptical of whether businesses will continue giving back to their employees. In the case of Walmart and a few others, recent changes have included increasing the minimum wage and that kind of commitment isn’t likely to go anywhere. In other cases, however, there have only been bonuses that some economists see as more of a public relations move than something that is likely to happen again in the future, according to Bloomberg. A lack of understanding of the new tax code may also be causing consumers to overestimate how much money they will be getting back in their spring tax returns. This amount may have to be fairly large and complemented by continued trickle-down from employers if it is going to really offset increased spending and decreased savings.
Whether businesses can continue increasing pay and benefits for their employees also counts on continued stock market strength, which began to show signs of weakness earlier this week, according to MarketWatch. Stocks took a slight dip in the beginning of the week largely because of markets that are wary of decreasing strength in the banks. “As concerns rise over receding monetary support from central banks, there is a danger that the stock markets could hit the reverse gear,” Forex market analyst Fawad Razaqzada told MarketWatch. In essence, the tax code change weakened banks but strengthened corporations, which in turn paid out to their employees, who then put less into savings, which hurt the banks, which threatens the corporations.
The stock market is also likely to be reactive to uncertainty as budget debates occur in Washington. These debates have been postponed, but not completely avoided by a stopgap budget that was signed last week that only secures the national budget as far as next week.
