If you’re forecasting a material deceleration in US economic activity during Q4, you should stop.

Not because you’re wrong, but because, as I never tire of reminding readers, forecasting macroeconomic outcomes is everywhere and always a fool’s errand.

That’s not to say you can’t look smart every now and again. You can. Just ask Larry Summers, who (still) looks like a genius for warning on the risks of additional fiscal largesse just months before inflation took off in earnest across the developed world.

Rather, it’s just to say that in order to be right, you also need to get lucky. Summers, for example, was assisted by factors to which he gave short shift and then, later, by a war he obviously didn’t predict. Had the supply side of the economy normalized more quickly than it did, and if Russia didn’t invade Ukraine, Summers might’ve only been right for a few months. Instead, he ended up being “right” for two years.

Anyway, let’s assume you have to forecast economic outcomes because that’s your job. If that’s you, you could do worse than suggesting the US consumer is likely to retrench in the months ahead, at least at the margins. After all, pump prices are rising and tens of millions of Americans are supposed to start making student loan payments again next month (how many actually will is another story).

If you ask Morgan Stanley’s Mike Wilson, consumer stocks might be “picking up” on the prospects for slower spending. Wilson on Monday cited “student loan payments resuming, rising delinquencies in certain household cohorts, higher gas prices and weakening data in the housing sector” while noting that the technical and breadth setup for consumer stocks “looks particularly challenged.”

The figures speak for themselves, although I’m not sure how loudly they speak to the broader macro picture. If you’re looking for confirmation bias and you think equities are efficient and forward-looking, then I suppose it’s possible to argue the charts bode poorly for consumption. My take would be they’re indicative of the broader market’s breadth problem.

Wilson wouldn’t necessarily disagree. Indeed, those charts were accompanied by familiar warnings about the narrowness of the 2023 rally in general. At the sector level, equal-weighted performance is only positive (i.e., equal-weighted outperforming cap-weighted) in industrials, energy and utilities. Happily for Wilson, industrials and energy are part and parcel of his “late-cycle” cyclicals call.

Coming quickly back to the consumer, the figure on the left below suggests pandemic savings cushions are nearly gone (depleted by two-thirds) in aggregate. The figure on the right suggests lower-income households have no excess savings left at all. Those are, of course, the households with the highest marginal propensity to consume.

“A significant proportion of US consumers have drawn down their COVID-era excess savings,” Wilson wrote, adding that “middle- and higher-income households are less willing to spend their excess savings on discretionary consumption.”

Late last week, Bloomberg ran an “everybody’s sad” story. You know the ones I mean. There’s a simple premise (in this case, inflation is falling but because it’s not outright deflation, consumers are still paying a lot more for things than they were pre-pandemic) followed by a few quotes from experts, then a compendium of forlorn anecdotes from real people struggling with whatever the premise is.

The linked article cited Quinnipiac’s Tim Malloy who said, of consumers, “What they see is the milk still costs as much as it did [and] the gas is still too expensive.” (“The rent’s too damn high!”) Mark Zandi, mainstay of mainstream media macro coverage, chipped in a factoid: Households which earn the median national income are paying nearly $750 more per month for the same goods and services versus two years ago.

Morgan Stanley’s economists, Wilson went on Monday, “judiciously avoided making the recession call earlier this year when it was a consensus view,” but now “see a weakening consumer spending backdrop.” The bank expects real PCE growth to turn negative in Q4, before “a muted recovery thereafter.”

I suppose this is obvious, but Wilson is Underweight consumer discretionary.