US consumption deceleration stabilizes, global economy is also optimistic - MS

Morgan Stanley's chief global economist said that although private consumption in the US will slow down, it is expected to stabilize thereafter.

Seth B. Carpenter stated in Morgan Stanley's note for North America that the Federal Reserve (Fed) would welcome an economic slowdown as inflation continues to decline due to post-Covid normalization.

“For the Federal Reserve, the economic slowdown is not a bug, but a feature. “Private consumption will slow down this year, but it will recover from last year's unsustainable high pace.

Meanwhile, while the US is decelerating from exceptionally strong private consumption growth, Europe is normalizing from exceptionally weak growth. Downside risks still remain, but full employment, rising wages, and falling inflation are working in their favor.

“Although Europe is not as dependent on consumption as the US, it is still a consumer-driven economy. Therefore, even if the part of the economy where the market tends to be more interested is weak, the difference in PMI between the manufacturing industry and the service industry shows exactly this,” Carpenter wrote.

Consumption trends in China are still soft, and analysts believe this trend will continue under current policies. Consumer growth is sluggish in Japan, but since inflation has stabilized and spring wage negotiations are being reflected in household salaries, analysts expect this situation to change.

It is unusual for the US to slow down and for countries other than the US to accelerate. “We must not lose sight of how strong the employment situation is... and usually labor income drives consumption... consumption drives the economy. “Globally, the labor market remains healthy, and we see that this situation supports widespread consumption.