US consumers are cautious but still spending: Visa economist

Yahoo

8 hours ago

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The US economy is showing mixed trends at best as the Trump administration continues to overhaul the global trading system. First quarter GDP fell 0.3%, but is expected to bounce back slightly in the second quarter. Consumer confidence has been on a downtrend. And the world's biggest consumer companies, including Walmart, Target, and Starbucks, have warned about sluggish spending trends by households. On the flip side, the stock market has recovered from the Liberation Day lows, which has helped to support sentiment among some households. So, where is the economy headed next, given the whirlwind of factors it's facing? Yahoo Finance Executive Editor Brian Sozzi talks on the Opening Bid podcast with Visa Chief Economist Wayne Best. Best is an economics veteran, armed with everything from insights on consumer spending from Visa (V) card swipes to the impact on the economy from the wealth effect of higher stock prices. Sozzi and Best discuss the economy's biggest challenges and potential surprises.
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Welcome to a new episode of the Opening Bid podcast. I'm Yahoo! Finance executive editor Brian Sozzi. Like I always say, this is a podcast will make you a smarter investor, period, and you're going to get smarter on all things, uh, economy here at this very pivotal moment for the US economy. Joining me now is Visa chief economist Wayne Best. Wayne, good to see you. It's been a while. Last time I saw you in our Yahoo! headquarters in New York City, you came with a bunch of charts and tables, so, um, welcome back. Appreciate it.
Thanks very much. Glad to be here.
So you are, um, you're very much a world traveler. I mean, you don't get a lot of rest, and you were just talking to me off camera, what is your GDP forecast right now?
Um, so for this year, uh, our forecast is 1.3. Um, so down from 2.8, obviously last year. We're getting over the the the stimulus led, um, COVID issues that created some of the challenges, and those are pretty much all gone now. The excess savings has gone by the consumers. Uh, so we have a slower growth path. We knew that was going to happen. Actually, it was part of our longer-term forecast as we think about the potential growth of this economy, which is, frankly, very much determinate based on the size of the labor force. Uh, so our potential growth is now around 2%. Um, it's similar to other advanced economies are also being held back because of the size of the labor force. Japan's around 1%. Uh, the EU is about 1.3, 1.4%, so a slower level of growth, and we need to put ourselves in that mindset. We're not going to be growing at three, four, 5% anymore. Those days are long gone for good.
Um, I don't see them turning around substantially. Uh, you know, we got 11,600 people turning 65 every day between now and the end of this decade. We're not having that many kids. In most advanced economies, they aren't. So it really all comes down to immigration and what the outlook for that looks like. Now, there may be some advancements in AI, and we can go there in terms of the potential improvements, but that's still several years off before we see really any material change that allows for the workforce to be more productive.
Maybe Elon's right. We just need to have more kids.
But this has to be This would be this has to have been a tough year, uh, to be an economist. I mean, I see it you know, through the prism of analyst estimates on Wall Street. You know, I've seen because at the height of the trade war, um, liberation day, April 2nd, estimates were being slashed. Now they're starting to creep up as we have more certainty on, um, you know, on trade policy, but I imagine you've had to make a lot of revisions and and changes to what you do.
Yeah. So my team, Business and Economic Insights at Visa, uh, we forecast the economy. We're usually rated pretty high in terms of the rankings of it, which is quite surprising given that the staff size is four people, uh, for the US side.
That's a lot of productivity from that staff group.
A lot of productivity. They're they're very efficient, uh, but we also have some pretty good data, too. So that helps us out along. Our forecast hasn't materially changed really for most of this year starting back in January when we expected the economy to grow somewhere under 1.5% but above 1%, and we're settling in now at about 1.3. But yes, we did have a number of different revisions that did occur. Um, I think we're upwards of 47, 48 revisions as a result of the various factors, but those were elements of it. Impact from tariffs, impact for potential impact on inflation in those particular aspects, which I think, uh, uh, are creating a lot of the volatility, but the headline number of 1.3 is pretty close.
Have you ever had to revise anything 47 or 48 times in your career?
Never.
And you've been doing this for almost 40 years?
Yeah, exactly. 35 years. So it's interesting that COVID we were revising things pretty much weekly, uh, and that was a really challenging time, too, with even more uncertainty in my mind about what the future would hold, whether you'd be able to leave your house, and jeez, am I ever going to be able to take a vacation again to to Europe, for example. But this time has just been so volatile because of the on again off again nature of some of these tariffs and the potential impact of those on inflation and other aspects of the economy.
I really admire what you do, and you do tremendous work, but you also have really direct insight into the economy through card swipes, credit cards, debit cards. Like, what are those swipes telling you right now about the economy?
Well, we take that data, and we couple it to a model that we created called a spending momentum index, which allows us to look at the number of people that are out there spending and whether or not they're spending more or less. And that's a really critical factor. Through some work that we did with Stanford's, uh, economics department years ago, if you look at the growth in say retail sales of a store, nearly 80% of that growth comes from more people showing up versus the 20% where people are actually spending more. So as we look at those numbers, we're sitting for the last couple of years now below 100. So fewer people out there spending more. People are out spending by all means, but not quite the pace that we saw previously. In the last report that we came out with for, uh, the month of April, uh, we showed that non-discretionary related expenditures had actually tipped above 100. So these are things that, you know, you have to have, gas, groceries, uh, um,
Other necessities.
Yeah, other necessities types of things. So, um, the data's holding up, you know, and and and I think it's been really consistent all through the last four or five months. You know, we go back to December, for example, very strong holiday season. A lot of the spending that happened during that period of time was really related to tariffs. People had an expectation that tariffs were going to cause things to be more expensive, and they started advancing those purchases in December and January and February. Discretionary purchases, things that are nice to have, were very much, uh, quite strong. And this is, you know, the furniture and the appliances and these types of factors. And I think that really led to a pretty large spike in the amount of spending that we saw in the first quarter of this year. Now, of course, we're going to have to pay some of that back, right? Because if I bought a refrigerator in February,
Don't need another refrigerator.
Don't need another one. And so that causes some of the slowdown that we expect to see over the next couple of quarters, especially in many of those durable goods, things designed to last longer than three years.
I recently talked to Walmart CFO, um, John David Rainey, after they reported earnings. Now he told me that price hikes related to tariffs will start, uh, at the end of May. Are you see and in some cases, double digits. Have you seen any inflation through the prism of card swipes? Because I imagine you buy something. Of course, that reflects the price on that good. Have you have you seen any signs that inflation is starting to pick up?
You know, we really haven't at this point. And let's remember consumers and businesses are pretty darn smart. They have tools that are available to them now that they never had before. If something goes up in price, I can look at something else. Now, online and find it at a lesser price. Maybe I don't want this particular item coming from a country that has a higher tariff that would cause that price to go up. People price shop and comparison shop even more so now than anything that we saw in the previous decade. And I think that's going to allow for a lot of, uh, consumer know-how in terms of keeping those prices well in check. If we look at the direct impacts of tariffs, uh, we modeled that to be about 1.2 percentage points. So quite simply, uh, the PCE deflator running at about 22, we think will come out, uh, later this week. Um, so 34 kind of a number. All right. Well, but that's not how it all works. First off, our growth estimates said that these tariffs would remain at those elevated levels for a period of three months. We were one of the few people that were actually determining that this was going to be much more short-lived. And why? Put a lot of deals in the wall, let's see how many end up, uh, lasting. That's, uh, the administration's, uh, uh, mantra. And that's exactly what's been happening. So we have several factors that caused that indirect impact to inflation. One of it is price shopping. People are going to find a different way. Some of it is, um, businesses are going to route goods through a a channel that allows them to bring in the goods cheaper. Uh, and so there will be some retail margin hit also. You couple that with those tariff duration of three months at these levels, uh, and you end up with a indirect inflation impact of .2. So if we are right on the PC deflator coming out at 22, uh, then be 24. So, yeah, that's kind of a drag. You know, it's a little higher, but it's not runaway inflation, which I think was a lot of the fear that happened and the uncertainty prior to that.
I hear a lot of, uh, a lot of CEOs have been telling me, uh, within the consumer space they've seen consumers pull back. What income demographics are pulling back? I when I hear the CEO of Coca-Cola, uh, James Quincey, he told me consumers are pulling back on on their purchase. I think of Coca-Cola as a soda. It's a necessity for some people. Is it those lower income households that are getting hit the most right now because of the tariffs?
Well, first off, the good news is in this economy, basically everybody's working. You know, we have a very low unemployment rate. Uh, we actually It's at 4.1, 4.2. We're going to see it growing to maybe 4.5% on a on an individual month basis, but that's still considered full employment. Um, it's the uncertainty factor that causes different income groups to probably pull back a little bit more. I'm not sure if I'm going to have a job in the future. So maybe I should cut back on some of that type of spending. One of the saving areas that we see is, um, that has helped consumers, especially in the lower income consumer bracket. And what do they spend their money on? They spend it on accommodations, a place to live, gas, and food. Well, gas prices have come down quite noticeably, not necessarily in California where I live.
They just permanently stay there. Just always at those levels.
Exactly. But elsewhere, they have come down pretty dramatically, and that lower levels of gas prices, which is one of the key things as we talk about the south, that's one of the key things that they buy relative to other, uh, parts of the United States. They don't have as much, uh, transportation options, and so they have to drive their car. So that helps them in terms of having the ability to spend in other categories. But yes, I think the low and middle income households they're they're being more cautious. I think that's the aspect that we see right now. Maybe I don't need that extra steak, or maybe I'm going to switch out for certain things depending on prices, and maybe I'm certainly not eating eggs right now or now just starting to again because of the price.
Egg eaters, you just have to fake it.
That's right.
All right. Hang with us. When we go off for a quick break, we'll be right back on Opening Bid.
Welcome back to Opening Bid. Of course, this is a new episode at the Nasdaq in Times Square. Having a great chat here at Visa chief economist Wayne Best. You are really focused right now on the south or the southern part of United States. What are what's the state of the economy as seen through the prism of of the Southern states?
So, um, you know, when we we've been studying, uh, through our research different generations, demographic groups, for example, we've studied homeowners. We've studied, uh, Gen Z and millennials and boomers and other aspects. And in every one of those cases, these are generational trends that tend to span decades. But one of the things that we just discovered was the explosive level of growth that we're seeing in the population, spending, and other aspects in the south, the southern part of the United States. Uh, population change was 5.6% growth, well exceeding what we saw in other regions. That's since 2020. Well exceeding what we saw in other regions, very strong growth. And if we look at where that growth came from, some of it was people moving from other states moving into the south.
Yeah. I look at my parents. They they moved to Florida five or six years ago, and all they do is go out to eat every day. I mean, they have a nest egg, and they're just loving their life.
Well, people moved from New York down to Florida. People moved from California to Texas. A lot of immigration, domestic migration, specifically, um, and that was pretty profound during that period of time. Uh, but there was also And actually, if you look at the growth of the south in terms of the population, nearly 84% of it came from international migration. Obviously, close to the border as part of that. And while international migration did occur throughout the United States, it was much more concentrated in the south. And so you have those aspects of a population size that's changing. So that's the the first element. The other element is because of these new entrants coming in, you need more types of stores. You need more places that they're going to be able to spend, whether it be grocery stores, etc. Over the last five years, nearly 78% of all the jobs created in the United States were in the south. Now that's pretty profound. 78 in 16 states.
So not not in Silicon Valley.
Not in Silicon Valley. Exactly. It's all been in the south, 78% of it. That's a big number.
Very big.
And as a result, and you look at the shift over time in terms of the types of jobs those people are are taking on, the whole south has transformed themselves from a couple of decades ago. Um, 18% of the south was, uh, manufacturing. Now it's down to 8%. We've seen growth in more higher value-added jobs. So professional services is one example, better paying jobs, and it's allowed for the standard of living to continually increase in the south, which has certainly been beneficial for that group also.
We've seen, um, of course, the Trump administration very focused on bringing back jobs to the US via manufacturing. You know, as you look out over the next decade, how will that change in jobs and and how we grow in the US? How does that change the dynamics of the US economy?
Well, I think it has a lot to do with, uh, you know, where the people are at, what are they attracted to. I mean, people moving to the south and that migration domestically has come from, uh, cheaper houses and lower taxes. These have been factors that allow those consumers in the south to save more of their money. They have more of their money available to be able to spend, save, and pay down debt. Uh, it's getting warmer there also. So, you know, I think initially everyone thought everyone was going to move up north because of the temperatures, but the opportunities are what are really starting to show and and play out in terms of the, uh, job prospects as well as the recreational activities that are available in the south also.
Do we have the labor supply in this country to support a a new manufacturing boom?
Um, I think if we have some additional, uh, immigration, a little bit more free flowing of immigration, uh, we could see some resurgence in certain categories. The United States has always found a way to continually innovate and figure out new ways to make things more effective and productive. So maybe robots will be doing some of that manufacturing. I mean, that's not a far stretch based on what we're seeing today, uh, allowing us to still maintain a very good standard of living, um, because manufacturing jobs, very well paid, but, you know, these aren't the professional jobs, consulting jobs, etc. that are are much higher paid. So you have to figure out a way to make that all work, and other types of either AI or robots or other, uh, uh, areas may be the the trick there.
Anthropics founder, um, recently said that AI could get rid of 50% of white collar jobs. Are you a buyer of that? Is that possible?
I think that that's a big number.
That's a big number, Wayne.
That's a big number. Yeah. I mean I mean, I think there's certain types of jobs that are apt to be able to take advantage of the AI, you know, graphics designers. Uh, we have a a picture of an elephant and a We wanted a picture of an elephant in a in a grocery store aisle to talk about GLPs and and the impact that they're having on the grocery business. Um, well, there is no picture of an elephant in a grocery store aisle. So we generated one through AI. I mean, this is an example of of an extreme example. But there are types of jobs. Those jobs that are much more computer centric, um, will allow for some of those jobs to either be replaced or maybe make them more efficient. If you look at a salesperson, for example, over 60% of their time is spent on back office functions instead of really getting out there and selling. So maybe we have more sales people on the front line and more of the back office being handled by some of the AI generated tools that are available. So that that is not I mean, 50% reduction in white collar workforce. That's just not
It's not realistic.
I I don't think it's realistic under the current environment. First off, we have to see many businesses start to adopt AI and change their business practices to make it efficient and make it work. And that's not an easy thing to do. If I'm have, uh, somebody that used to capture the notes from a business meeting and then sent out those notes afterwards, and now that's being done via AI. Um, that's great. But what is that person doing with their time that they've just saved? Are they shopping online at work? Well, that isn't saving a whole lot of time. So business processes are really going to have to shift. And for large businesses, that's very challenging, you know, changing the flow of information and what you do, etc., um, and the impact from that will take several years at least. Uh, we'll see some carve outs at the edges. We're already seeing a lot of the advances in the coding area, uh, computer coding and programming, and I think that will be a part of it. So we'll see some advances and continued advancements there. Uh, but the other aspects are are at least two to three years out. And for many businesses, the only way they'll be able to incorporate a lot of those changes is to buy a company that already is doing it, uh, and then figure out how to put that into your organization to make it more effective.
In the last few minutes of the podcast, we always love to get a hot take from our guest. Um, so my question for you is this, you know, I joked earlier on about Elon suggesting we need to all have kids, um, or more kids. When is when is the fact that we're not having children or not having enough children? When does that show up in the economic data? And what does that do to the country's economy, uh, to our economy, if not the world's economy, looking out over the next few decades?
Well, it it it creates a lot of challenges because, you know, let's face it, um, true or false, kids are expensive. Uh, you spend a lot of money on them, um, and now I'm a grandparent of two, uh, five month and five year old, uh, and we're spending a lot. In fact, my wife keeps telling me, you know, we've got to cut back on buying things for the kids, and I says why, you know, this is the most exciting time.
It's addicting, right?
It's amazing. It's the most incredible experience ever. But if we don't have all of those additional kids into the future, that's going to create some challenges, not just on spending on those kids, but education. We looked at, uh, the closing of schools that are already starting to occur, not the big Ivy League schools, but the, uh, uh, more of the for-profit schools that just doesn't that many people coming through the pipeline. It starts to have an impact. And we have to be careful that we're still going to be productive and allow for a labor force that will allow this economy to grow. You can easily see some of the challenges that's going on in China as well as Japan right now. And, um, as I said in Japan, potential growth of maybe 1%. Um, it's it's going to be hard to break out of that mold. Um, and so adding to that overall, uh, population and labor force will be very critical for us to be successful in the future.
Wow. Um, well, we'll leave it there. Um, like I told some of my team before this, you're one of the best kept secrets in the economics field. So good to see you. I appreciate you coming on down, uh, Visa chief economist Wayne Best. We'll talk to you soon.
Thanks very much.
All right. And that's it for latest episode of Opening Bid here at the Nasdaq and Times Square. Continue to hit us with all those hearts and thumbs up on YouTube and all the podcast platforms. Appreciate the feedback. We appreciate the love, and we'll talk to you soon.