The president of the Federal Reserve Bank of Chicago said that he’s hopeful that inflation will continue to come down while pointing to several warning signs for the economy, such as cooling consumer spending, a key economic driver.
Federal Reserve Bank of Chicago President Austan Goolsbee said in a June 24 interview on CNBC that he’s “closet optimistic that we’re going to see improvement” on the inflation front, adding he needs “a little bit more confidence” that price pressures are indeed coming down after several higher-than-expected readings in recent months.
He said policymakers need to weigh whether the relatively high level of the Fed’s benchmark interest rate, now within a range of 5.25 to 5.5 percent, is appropriate for an economy that’s starting to show patches of softness.
The current economic situation is far from what could be described as “traditional overheating,” he said, noting that there are “a couple of warning signs” to take note of.
He singled out rising unemployment claims, increases in debt delinquency rates, and what seems to be cooling in consumer spending—all factors that he said make it “worth wondering about where we are on our restrictiveness scale,” referring to the level of interest rates.
Warning Signs
The warning signs mentioned by the Chicago Fed president hint at a cooling in the labor market and signs of consumer weakness.
Initial jobless claims, which measure the number of people filing for unemployment insurance for the first time, came in at 238,000 for the week ended June 15, slightly higher than forecast.
The four-week moving average was 232,750, an increase of 5,500 from the prior week and the highest level since September 2023. The four-week moving average, which gives a clearer picture of the overall trend, has been going up steadily since the end of April, when 210,250 people filed for unemployment.
Chart showing the 4-week moving average of initial unemployment claims, from March-June 2024. (Federal Reserve Bank of St. Louis)
Besides the steady rise in unemployment claims—which hint at a softening in the labor market—the U.S. economy has also seen a rise in debt delinquency, along with an increase in concern among Americans about losing their jobs.
An April report from the Federal Reserve Bank of Philadelphia flashed a warning sign regarding the ability of U.S. consumers to pay off their credit card debt. The share of credit card accounts with past due debt payments reached all-time highs at every time horizon—30 days, 60 days, and 90 days—according to fourth-quarter 2023 data from the Philadelphia Fed.
Another sign of cardholder stress came in the form of data on payment behavior. The Philadelphia Fed report showed that the share of accounts making minimum payments, as opposed to paying down a greater portion of the balance due, rose 34 basis points from the prior quarter’s reading, also hitting a record high.
A report on consumer expectations from the Federal Reserve Bank of New York in April showed that concern among Americans about losing their jobs rose to its highest level since September 2020, a year marked by a deep pandemic-related recession. The same report also showed that consumer worry about being able to make minimum debt payments rose to its highest level since the pandemic hit.
Those debt-related concerns saw some confirmation in the form of a May report from the Federal Reserve Bank of New York, which showed that the overall flow into serious delinquency (defined as 90 days or more delinquent) rose in the first quarter to 1.08 percent from 0.71 percent in the comparable quarter a year prior.
While the overall delinquency rate remained relatively low by historical standards, delinquency rates in several specific categories—including credit card, auto loan, and consumer loans—saw fairly sharp increases. Credit card delinquency rates, for instance, rose to 4.57 percent in the first quarter of 2024, up from 3.04 percent in the comparable quarter a year ago. The debt category defined as “other,” which includes retail cards and various consumer loans, jumped to 4.35 percent in the first quarter, up from 2.88 percent in the comparable period in the prior year.
Consumer Spending
The latest data on consumer spending, which accounts for roughly two-thirds of economic output and so is a key driver of the U.S. economy, also flashed a warning sign in recent months. Retail sales—a proxy for consumer spending—rose a paltry 0.1 percent in May after falling 0.2 percent in April, according to U.S. Census data.
“With the pace of Retail Sales being at its weakest since the great recession, demand for air travel receding and experience spending starting to show fatigue, the economy is at a tipping point,” economist David Rosenberg said in a post on X.
A recent report from consulting company McKinsey showed that consumer optimism fell in the second quarter of 2024 to its lowest level since the end of last year.
“Economic pessimism grew slightly, fueled by concerns over inflation, the depletion of personal savings, and perceived weakness in the labor market,” the report’s authors wrote.
The report showed a rise in consumer intent to spend on essential items over the next three months, while consumers planned to reduce their spending on discretionary items.
A report from Deloitte at the end of May painted a similar picture. It showed that the company’s financial well-being index of consumers held steady in recent months, but future spending intentions “still point to robust consumer focus on saving instead of overspending.”
Tom Ozimek is a senior reporter for The Epoch Times. He has a broad background in journalism, deposit insurance, marketing and communications, and adult education.
