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Consumers Are Doing Great, But Your Highest Spending Cohort Might Not Be…

April 3, 2024 | Corinne Casagrande

This article originally appeared in MediaPost. 

The U.S. economy keeps barreling along, driven by strong household demand and business investment. Recession calls are being rescinded, from the Conference Board to Deutsche Bank.  The National Association for Business Economics forecasts a 2.2% GDP growth this year, with inflation at just 2.1%.

Consumers are generally feeling better about their personal finances than they have in over two years.  The consumer sentiment index, measured by the University of Michigan, rose to the highest level since mid-2021 in March. Most people are feeling good about stock market gains and easing their inflation expectations. The Federal Reserve has confirmed that it will keep the interest rates low and support the economic recovery with its monetary policy.

The job market is strong. The unemployment rate rose slightly in February to 3.9%, still very low by historical standards. Immigration has powered labor supply, which helps bring down inflation.

Discretionary spend is flush, except for some consumers with(out) cushy jobs

Despite all this good news, the job market is showing signs of softening. People are not finding work as quickly. February’s payroll data showed some of the increase in the unemployment rate was due to people entering the labor force and not immediately finding work.

According to Indeed, a job search website, overall job postings did not experience their typical January bounce in 2024, ending January down 5% from pre-holiday, Dec. 1 levels. The number of people searching for a job in January 2024 was higher than in the pre-holiday period. This points to a cooling job market with lower demand in industries where you need a resume.

Some of the states with the highest unemployment rates, such as California, Nevada, Arizona, and Wisconsin, indicate that there are pockets of weakness in the labor market that are not captured by the national figures.  These states have been hit hard by layoffs in the tech sector, which lead layoffs across industries in 2023 that haven’t stopped yet in 2024. According to Layoffs.fyi, a website that tracks tech layoffs, the tech sector shed 168,032 jobs in 2023, and over 56,858 tech employees have been let go from tech companies so far in 2024.

There are many reasons for tech layoffs, from unsustainable business models in the ZIRP era to pandemic over-hiring. However, the continued push for labor efficiency into 2024 makes one wonder if the tech sector sees something about AI productivity and human labor that other sectors haven’t caught on to yet.

Are tech layoffs a warning bell for other professional industries?

Higher income workers have more anxiety about their job security, with 17% of U.S. workers making over $100K expecting a loss of income over the next month, per Axios. This concern is three points higher than workers making between $50K-$100K.

These workers, who typically earn high salaries and have high levels of education, may face difficulties in finding new jobs or switching careers, and may have to reduce their discretionary spending, which could affect the sectors like travel, entertainment, and retail.

When marketers have a product or a service they want to sell to millions of Americans, starting with affluent cities on each coast is usually a pretty good bet.  People with more money buy more things. The pocket of job insecurity in the professional sector is one to watch, as both a high lifetime value consumer cohort and as a warning sign for a softening job market.