Here is an update from JP Morgan. It’s focused on the US, which impacts Canada.
The US economy continues to show strength, albeit starting to slow a bit, it's important to recognize that the risk of a recession still lingers.
Therefore, the best approach going forward is to be cautious and patient.
The term "resilient" is often used to describe the U.S. economy in 2023, largely due to strong consumer activity. In the second quarter, household spending drove over half of the economic growth and is expected to do the same in the third quarter. Low unemployment rate and rising wages have supported consumers, but it's possible that the situation may be less secure than consumption data suggests.
By JP Morgan’s measurements, the excess savings accumulated during the pandemic have dropped from $2.1 trillion to just $0.2 trillion. This has led consumers to rely on credit to sustain their spending. While the ratio of credit to disposable income doesn't appear overly concerning at the moment (6.3% in June compared to 6.5% before the pandemic), there are signs of trouble.
Delinquencies for credit cards and auto loans are on the rise. Early delinquencies for credit cards in the second quarter reached their highest level in a decade, and serious delinquencies (over 90 days overdue) are also increasing.
This suggests that the effects of increasing interest rates may be starting to impact consumer spending. Additionally, with student loan payments resuming at the end of the month, the exuberance of summer shopping may be followed by a more frugal back-to-school season.
In Canada, there has been a noticeable impact on the cost of mortgages and how we are spending here.
Consumer confidence notably declined in August, dropping almost 8 points to a reading of 106.1, partially reversing gains seen in June and July. Investors seem to be taking a similarly cautious approach, likely due to doubts about a smooth economic transition and concerns about rising energy prices. Consequently, stock prices fell last week.
So continue to proceed with caution and patience.
Here are the latest YTD market numbers as of September 26, 2023:
| S&P 500 | 11.8% |
| TSX | 7.2% |
Sources: https://www.marketwatch.com/investing
https://www.jpmorgan.com/CA
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