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'We may now be observing the peak in consumer strength': strategist

U.S. consumers are on a spending spree and their optimism has really carried the U.S. economy this past year.

The U.S. Commerce Department said household spending rose a seasonally adjusted 0.2% in September from August. But consumer spending growth slowed to a 2.9% annualized rate in the third quarter, after reaching a 4.6% pace in the second quarter— the fastest rate since the fourth quarter of 2017. So, how much longer can the American consumer carry the economy? One market strategist says not for long.

“You saw the peak in economic growth and the peak in corporate profit growth in the middle of last year, and since then, both have been decelerating,” Michael Arone, chief investment strategist for State Street Global Advisors’ US SPDR Business, told Yahoo Finance’s On the Move. “We may now be observing the peak in consumer strength.”

Consumers are responsible for 70% of the country’s economic activity. They’ve helped lift the economy while manufacturing and business investment has slowed. 

Shoppers carry bags of purchased merchandise at the King of Prussia Mall, United States' largest retail shopping space, in King of Prussia, Pennsylvania. REUTERS/Mark Makela

“The divergence now between how businesses are feeling and how consumers are feeling is pretty wide, and we're starting to see job gains slow down, wage growth slow down,” Arone said, adding that if consumer strength falters, earnings are at risk.

“Most folks are expecting double-digit earnings for share growth for S&P 500 companies right now,” he said. “If we don't see that follow through to the continued consumer strength without a pickup in the other areas of GDP — most notably, business spending — you're going to see those earnings expectations come down.”

Right now, conditions are positive for U.S. consumers. Unemployment is at a 50-year low and wage growth continued to increase. But slowing global growth and the year-long trade war are key risks for U.S. consumers.

“The consumer just can't continue to do it alone,” Arone said. 

Valentina Caval is a producer with Yahoo Finance’s On the Move.

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