As retailers continue to warn of weak consumer spending, Yahoo Finance's Josh Schafer joins the Morning Brief to provide insight into the health of the consumer and whether this signals the beginning of a recession.

Schafer points to a Barclays estimate showing that consumer excess savings are higher than expected. However, with the rising prices of goods, consumers are more conscious about their spending and prioritize value when they can.

"We just aren't seeing a lot of trends that show us that we're fully going to slow down," Schafer explains. He emphasizes that a slowdown does not mean the country will enter a recession and that consumers will continue spending.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video Transcript

Warning out from a number of retailers, many consumers pulling back on spending amid high inflation five below sinking today.

After seeing comp sales decline about 2% from a year ago, the company forecasting further declines for the year also saw similar messaging from a food and beverage retailers.

Let's start with mcdonald's and Starbucks both warning about price conscious consumers.

So what does this all mean?

We wanna talk about chart of the day?

Maybe we shouldn't be too concerned.

Yahoo Finance's Josh Shafer is here with more.

So tell about some of the trends that you're seeing.

You've got a great chart here for us.

Yeah.

So I think talking about what companies are seeing versus talking about potentially what's in the economic data are always slightly different cases, right?

Because companies can, maybe people just didn't want a $7 coffee at Starbucks anymore, right?

That doesn't necessarily mean that consumers aren't spending or don't have money to spend.

And that's what our sort of day really looks at here is if consumers have enough money to spend.

So this is excess savings.

This is a chart from Barclays economist Jonathan Millar and what they're highlighting here is that they think that excess savings is actually higher than what is currently estimated.

So your light blue sort of shaded chart would show that there's about $850 billion in excess savings left for us consumers.

Your purple line is how much excess savings is being spent monthly.

Right now, you're looking at about $50 billion that's being spent monthly.

So if you extrapolate that out and do the math here, it would take us consumers 17 months at a $50 billion per month basis to spend the rest of the excess savings that gets us well into 2025.

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That is not of a lot of people's a lot of people's base case.

That's been the interesting part of excess savings post the pandemic excess savings, all the money we saved while we were in lockdown, right?

And sort of the impacts of that stimulus.

And it will be interesting to see how that does play out.

But this is one thing that Barclays is saying they think quite simply consumers still have money to spend.

And when you look at something like just the general savings rate, the general savings rate is still very low, meaning that people are taking their money and putting it back into the economy, you can see in this chart where the shades are, that's a recession, the savings rate ticks up right, because the economy isn't doing well.

I want to save my money.

I need to save my money right now.

That is not how consumers are acting from a broad perspective.

And so right now, we're just, aren't seeing a lot of trends that show us that we're fully gonna slow down again.

A slow down doesn't mean that we're entering a recession.

And I think that's the key difference in the recent data we've had, maybe consumers are spending less than they spent last year.

That doesn't mean that they're just gonna suddenly stop spending all together.

You know, it's interesting.

We had uh Nela Richardson, a good friend of the show ad P chief economist on yesterday who said that the consumer is, is battle weary right now.

And so if we have this consumer mindset that you were just laying out, where are they most prone to perhaps stop spending or look for value in increasing uh manner as well?

Well, it seems like you've seen people look for value and ask Walmart, right?

Walmart.

Walmart has continued to say that they're seeing more high end consumers come to Walmart.

Maybe that's just because they have good options, right?

Maybe it's companies like Amazon that are benefiting from things like that.

And I think you're definitely hearing that within these different company releases is ok.

Some companies aren't doing well, but there's almost always a company within the same industry that is doing well.

And so you kind of have the comps that way.

Yeah.

And, and that and that's so important to point out.

And I also think from this earnings season, we have seen many companies who haven't really necessarily been offering that value option now come around to the fact that they need to, even when you take a look at some of those fast food companies, more and more over the last several weeks are sound now are now starting to offer.

Was it the $5 meal, $3 value meal?

So I think that people or companies not, people, companies are being forced to make these types of value oriented offerings because people are more conscious.

But you're right.

There is plenty of money.

Take a look at that chart there that consumers still have to spend.

It's just where they are choosing to spend it.

A more cost conscious consumer.

Right.

And I think we've really been talking about that for what, a year, two years and seems like a lot longer than that price price hikes have mattered over the last several years.

Right.

And that is taking a toll on where people are going to spend.

Well, I can tell you that my Walmart bought golf shorts do just fine during the summer.

Uh I am trying to, there it is Brad.

We don't need to over, we don't need to overtake this.

No, we don't.

16 bucks.

Great shorts, great shorts.