Does the Consumer Have the Wherewithal to Continue Saving the Day?

Despite experiencing three years of persistently high interest rates, the U.S. consumer has remained resilient, largely because the labor market is robust and the equity markets have been strong, leading to healthy household balance sheets. However, it remains to be seen whether the consumer has the wherewithal to continue saving the day.

KEY HIGHLIGHTS
-- There are worrying signs for consumer spending: weakening consumer confidence, slowing retail sales, and declining equity markets are contributing to lower household wealth.
-- Tariffs represent one of the greatest risks to the consumer not only because they lead to higher prices, but they also increase the risk of recession.
-- Although household debt is rising, debt servicing costs remain near historic lows, and easing monetary policy should support credit expansion.
-- Investment-grade consumer asset-backed securities remain on solid footing, supported by credit enhancement, performance-based triggers, and excess spread.

"How well wages keep pace and how long unemployment stays in check will dictate whether consumers will remain on solid ground," said Stephanie Chin, Senior Vice President, Structured Finance Research. "Should the current proposed tariffs remain in place, higher inflation and recessionary pressures will persist."