Inflation, Consumer Spending, and Stagflation: Insights for Small Businesses
In June’s Small Business Indices, we focused on consumer spending and its implications for the overall economy. In this blog, we will share insights on growth and lending practices as well as the latest news on “stagflation.”
Overview
First, we can report that while inflation has slowed, it is still one of biggest concerns for small businesses.¹ Although the numbers are less volatile year-over-year than month-over-month, the latter is a truer read. The good news is that the inflation spike we saw in January 2024 has been easing throughout the year. The PCE, or Personal Consumption Expenditures, is an indicator of consumer demand.¹ According to the U.S. Bureau of Economic Analysis, interest rates could fall in response, but it could also reflect a reduction in consumer demand. Additionally, the Real Disposable Personal Income (DPI) chart shows 1% growth; however, pre-pandemic, there was 2.7% average annual growth rate from 2015 to 2019.¹ We see that both default and delinquencies are more common, with consumer credit card delinquency increasing.
Consumer Spending Insights
As we take a look at California, our featured state this month, we see lending has weakened while both defaults and delinquencies have gone up YOY.¹ Consumer spending is the primary issue; while income growth is slow, spending is the lowest it has been in five years, suggesting U.S. consumers may be finally tapping the brakes on their post-pandemic spending patterns, putting pressure on small business cash flows.¹ This is a trend that is being seen across the U.S. As household debt climbs to $17.7T in Q1 2024, consumers are struggling to pay their debts as reflected in increases in credit card delinquencies.³
Stagflation: Fact or Fiction?
Finally, the term “stagflation” has been recently discussed in some economic circles.² This month’s report shows that any negativity is probably overstated. The general consensus is to wait and see what the outcomes may be over the next several months. Moreover, slower growth is consistent with a soft landing, but we will still be keeping an eye out for whether inflation has already hit its peak.
What's Next?
Staying informed on current trends is crucial for gaining insights into the potential direction of the economy. Despite facing challenges, there are indications of resilience. Remain ahead of the curve by accessing our Small Business Indices, and gain valuable knowledge from leading financial experts by registering for our monthly Market Pulse webinar.
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