Economy Shows Signs of Slowdown Despite Q3 Expansion
Experian and the economists at Oxford Economics have released a report on Q3 credit performance in the latest Main Street Report. The economy expanded 4.9% in Q3 but signs of weakness are evident such as falling personal savings rates and bloated inventories. Tight monetary policy, reduced fiscal spending, and pressures on household finances will weigh on growth. Unemployment is expected to rise to near 5% by mid-2024.
Consumers Drive Growth but Take on More Debt
Consumer spending has remained strong, supporting small business cash flows. However, more spending has been funded through debt as savings deplete. Lower- and middle-income households have less capacity to take on additional debt. Credit tightening by lenders in response to rising delinquencies will reduce access to credit.
Cautious Business Strategies Expected in Q4
Retailers have normalized inventories to avoid discounts. However, early holiday shopping data shows slowing retail sale growth in October. Moderating consumer demand will impact inventory restocking and warehousing. The transportation industry is also affected by reduced volumes.
Potential for Soft Landing in 2024
There is still potential for a soft landing but it may mean accepting higher inflation and lower growth for longer. The Fed is not expected to cut rates until Sept. 2024. Fiscal tightening will also weigh on rebound potential.
Changing Credit Conditions
Despite the worsening economic outlook, some lenders are reconsidering tightening lending standards to support cash-strapped businesses and build loyalty. Lower rates also reduce risk tolerance. However, delinquencies and bankruptcies are rising across sectors.
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