Spending Slowdown Risking US 'Jenga Tower' Economy

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00:00Looking at the headline of your story, which is one of the most read on the terminal today,

00:03comparing the U.S. economy to a Jenga tower. Why?

00:08Yeah, I think you're right. This is increasingly talked about now. And what we're seeing is that

00:15spending is increasingly being driven by those top 20 percent and even the top 10 percent of earners.

00:23So obviously spending is hugely important to the U.S. economy. It drives two thirds of economic

00:29activity. And the more you concentrate that in one group of people, the more fragile things become.

00:36Right. So folks are comparing it to a Jenga tower where you're just removing pieces from the bottom

00:42and now the middle parts of the tower and it's becoming more and more top heavy. Well,

00:48at some point, does it fall down? I really enjoy that imagery there of a Jenga tower, Katerina.

00:54We do see, as we mentioned earlier, the stock market down today. But it is important to know

00:59that the S&P 500 has returned more than 15 percent this year. I know that the market isn't necessarily

01:04the economy here, but what is your sense on the divide between stocks and the U.S. consumer?

01:11Well, I think what it's showing is that that that those stock market gains are really supporting

01:18the consumption you're still seeing at the top because we know that stock ownership is really

01:24a divided thing in this country as well. Right. Most, you know, only if not, not a huge amount of

01:31people in the U.S. own stocks. It's concentrated in the wealthiest individuals. And so when stocks do

01:37well, the wealthy spend or keep spending or feel confident enough to spend. Right. But it doesn't

01:45really help those at the bottom or even a lot of those in the middle because they don't own stocks.

01:51In a lot of cases, they also don't own other assets that have been appreciating quickly,

01:56like homes. Right. So they're not benefiting from those gains. So, yes, absolutely. The stock market

02:02is still up. The economy is still growing by many measures pretty robustly. So we're not, you know,

02:09looking at an imminent recession. But it is these little things do start to add up and they just do

02:15create a kind of more fragile landscape for the economy. Katarina, because I think you spoke to

02:22Peter Atwater, who I'm a big fan of, who really coined that phrase K-shaped recovery. And I know he

02:28was posting on social media today about there being a longer leg to the bottom of the K and that upper leg

02:34getting a bit smaller or more pinched. What's your read of the state of the economy? Are we continuing

02:39to see really the top one, two, three, four, five percent of consumers carrying and people having

02:46to downgrade? And what are we hearing from companies reporting earnings on that?

02:50Yeah, I think that is really what you're hearing right now. You know, when the economy started

02:56recovering from the pandemic, you had pretty widespread benefits at that point. You had lower income

03:03folks really seeing their wages increase at a good clip, outpacing inflation and rising faster than

03:10than wages for those at the top. And now you're really seeing that reverse, which is not a very

03:16common situation for the U.S. economy when when wages for the higher income earners are rising at a

03:22faster pace than those for the bottom. And you're hearing it from companies as well across earnings.

03:29Really over the past few weeks, we've heard that companies are really seeing their bottom line

03:36buoyed by those at the top, by luxury spending, things like that. Whereas, you know, the lower end

03:43consumers are really not spending. Spending has kind of flatlined. And now, worryingly, you're seeing

03:50that creep into more of those middle income consumers. So I think that's where you get into this image of

03:57the K where the bottom leg is really getting bigger. It's like people are going from perhaps

04:02they were, you know, toward the bottom of that top leg. But now they're hopping down to the bottom

04:07leg and their fates are worsening a little bit. So, of course, we know the shutdown has prolonged

04:13to be the longest in all of U.S. history here. And we do have a challenger data, but clearly no

04:19inflation data. We are experiencing, of course, a data drought here. But Fed president or sorry,

04:24the Fed's Austin Goalsby pointed to this as a driver of the unease regarding rate cuts.

04:29How does this lack of data actually impact expectations for the Fed's next move?

04:35Yeah, I mean, you've really seen expectations come off for the next Fed move, right? At first,

04:41before the October meeting, people, markets were really expecting like 100 percent chance of another

04:47rate cut in December. Now that's really come off. Now, part of that was Chair Jerome Powell

04:53in his post-meeting press conference in October really saying that it's not a foregone conclusion

04:59that they were going to cut again. But a lot of it is also this these comments you're hearing from

05:05an increasing number of Fed officials. And they're basically saying that, you know, when things are

05:10foggy, when the outlook is is uncertain and when we're not getting new information from from really

05:18reliable data sources like the government, the prudent thing is to slow down, right? You don't want to

05:24kind of depend on data that's now three months old in some cases. So some, you know, you're hearing just

05:31more and more Fed officials calling for, hey, let's take a beat. Let's maybe not move in December and let's just

05:38see where things are.

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