Crypto News: American consumer buckles

Hello. Today we look at the weakening health of US consumers, the silver lining of China's lockdowns and shifts in China's housing market.

The American consumer, perhaps the most fundamental pillar of the global economy, is starting to wobble.

After enduring ever-increasing inflation for more than a year, evidence is mounting quickly now that the cost-of-living surge is tapping out US households, as Olivia Rockeman and Vince Golle report here.

Among the signs:

Data Thursday showed inflation-adjusted personal spending declined in May for the first time this year, and gains in each of the prior four months were revised down.
A report Wednesday showed the economy shrank 1.6% in the first three months of the year — lower than previously reported due to a sharp downward revision to consumer spending.
The Conference Board's index of consumer confidence on Tuesday dropped more than forecast in June to 98.7, the lowest since early 2021.

These sobering signs helped prompt a number of economists to cut their economic growth estimates. While most still see a positive April-to-June quarter, there's increasing risk of a back-to-back drop in GDP, following a first-quarter contraction — the textbook definition of a recession.

Goldman Sachs slashed its US GDP call for the second quarter by a full percentage point, to a 1.9% annualized rate. At Morgan Stanley, the tracking estimate is now just 0.3%.

"The consumer spending picture has darkened dramatically," said Stephen Stanley at Amherst Pierpont Securities, who took down his own forecast almost a full point, to 2.2%.

The soaring cost of gasoline and groceries has squeezed spending on other items, especially as inflation eats into the stockpile of cash that Americans enjoyed from the extraordinary pandemic-relief assistance extended by the federal government in 2020 and 2021.

Households are increasingly having trouble paying their bills, JPMorgan Chase economists highlighted — some 35% of them in the most recent week, up from about 25% a year before.

Spending on services is holding up for now, supported by pent-up demand for travel. But some economists are worrying this will fade once the summer is over.

Wells Fargo says the services boost could be over by Labor Day, in early September. Morgan Stanley warns of "payback" in the final quarter of 2022.

"Prior to this week's data, consumer spending was somehow defying gravity," Wells Fargo economists Tim Quinlan and Shannon Seery wrote. But now, "the hard data are finally showing what anyone in the checkout line at the grocery store could tell you: the struggle is real."

—Chris Anstey

Got tips or feedback? Email us at ecodaily@bloomberg.net

Ukrainian officials are exploring the possibility of restructuring their government debt as the war-ravaged country's funding options risk running out.

So people familiar with the discussions told Bloomberg News.

Policy makers in Kyiv are struggling to keep the budget running as the country's military fends off Russia's invasion, which has destroyed cities, brought the nation's key grain exports to a standstill, and displaced more than 10 million people.

Multiple scenarios are being considered and no decision is expected until later in the summer, according to two of the people, all of whom asked not to be identified because the talks are private.

Ukraine has time until at least Sept. 1, when it faces a $1.4 billion redemption and interest payments, according to Bloomberg calculations.

Asia manufacturing | Asia's factories showed a further slide in June as global inflation weighed on households, complicated central bank decisions and added uncertainty to the business outlook.
Europe inflation | Euro-area inflation surged to a fresh record, surpassing expectations and bolstering calls for the kind of aggressive interest-rate increases being deployed by central banks across the world.
China stimulus | China announced another stimulus measure to finance infrastructure projects, part of its push to drive investment and increase employment in the second half.
Property reversal | Australia's two biggest housing markets, Sydney and Melbourne, led a fall in home values during June as rising interest rates further choked buyer demand.
Sri Lanka taxis | The cost of transport in Sri Lanka's capital Colombo doubled last month even though most residents were stuck at home due to a severe shortage of fuel.
Europe travel pain | Travelers in Europe are paying ever more for a plane ticket and yet have less chance of actually making it to their destination.

China's policy makers, who have overseen such a stern tightening of policies affecting the property market that it spurred a slew of debt defaults by developers, may be turning to a new model for the nation's housing: an embrace of rentals.

That's what Rosealea Yao, a senior analyst at Gavekal Research, concludes in reviewing the latest tea leaves. Officials early this year unveiled plans to substantially expand a program to build more low-cost rental units for middle- and lower-income families.

Part of the motivation is avoiding the property-price increases that resulted from a previous move to shore up a housing downturn, in 2015, Yao writes in a recent note. Another is the recognition that rentals are a notably smaller part of the market in China than places like Europe.

"In the longer term, the subsidized rental housing scheme is likely to prove just one part of an increasingly expansive government effort to regulate the composition of housing supply and shift it away from the highly leveraged model that has generated the boom-bust cycles of the past decade," Yao writes.