Consumers – the focus of worries – and hopes
Donald Trump’s second mandate differs from his first in many respects, and particularly with regards to consumer confidence. In 2016, it accelerated noticeably after the elections and continued to rise for over a year. Today, whichever survey we look at, it has fallen to its lowest levels in three years, indeed since the COVID-19 pandemic. It is clear that US households are in a fragile situation. They have been on a non-stop spending spree since lockdown measures were lifted, to the extent that – for most of them – the savings surplus accumulated during the pandemic has been fully wiped out. For many households, their level of savings is even lower than in the pre-COVID era.
As a sign of this lack of reserves, in its latest consumer confidence survey, the New York Fed recorded an historically low number of households indicating that they were able to deal with an unexpected expenditure of USD 2,000. Emergency savings reserves have dried up and this situation is echoed in the labour market. Indeed, the proportion of US workers with both a full-time and a part-time job rose sharply in recent months and has now reached a level not seen since the end of the 1990s.
US consumption is based on two pillars. On the one hand, on income from work, whilst it is becoming increasingly necessary to have more than one job, and job security is becoming an issue in an environment where the labour market is gradually deteriorating. Furthermore, this income is likely to be affected by Donald Trump’s policy of trade tariff hikes, which, even if that proves temporary and does not provoke a new phase of durable inflation, will still have an impact on the real purchasing power of consumers.
On the other hand, US consumption is based on the wealth effect, fuelled in particular in recent years by the strong rise in stock markets. This second pillar is also wobbly. Whereas Americans have never held so many stocks – 33% of their net assets in the fourth quarter of 2024 – the negative trend in US markets since the start of the year is very likely to prove detrimental to the morale of households and their propensity to spend. This is even more true, given that US consumption has never depended so highly on better off households, with 50% of consumer spending based on the wealthiest 10%. And these are the households whose assets are most exposed to stock markets.
Whilst there are legitimate concerns about US consumers, who have been the main driver for growth in the last two years, European consumers are a source of hope. In contrast to their US counterparts, European households have consumed little of the savings accumulated during the COVID-19 pandemic and have even continued to build excess savings. The savings rate – the proportion of disposable income not used for consumption – has stood at around 15% for the last two years in the eurozone, a much higher level than in the two decades preceding COVID (12.9%). This is understandable: with the war in Ukraine, galloping inflation, the economy in the doldrums and political uncertainty, European consumers had good reason to be depressed. And a depressed consumer is a saver. However, most of these contrary winds today seem to be abating, and this improvement in outlook could have a very favourable impact on the morale of households, with a knock-on effect for consumption and therefore growth. Without even considering any utilisation of the excess savings accumulated in recent years, simply returning to the pre-COVID savings level would automatically mean a rise in consumer spending and provide a significant boost to GDP growth.
In summary, whilst the US consumer looks increasingly like a tightrope walker whose security net is gradually unravelling, the European consumer is like a human cannonball who has stored up unsuspected reserves of dry powder. Enough to send Europe skyrocketing?
Final version of 28 March 2025. Enguerrand Artaz, Strategist, La Financière de l’Échiquier (LFDE).