The American consumer is “walking towards a cliff”, warns the strategist

Trouble is brewing for the US consumer, according to one strategist, and a substantial drop in the labor market could lead to a recession.

“I think the American consumer is walking toward a cliff, basically,” Chris Watling, chief executive of financial advisory firm Longview Economics, told CNBC.Squawk Box Europe” Wednesday.

He said a number of recent economic indicators had shown that consumers are quickly running out of excess cash, while household savings are under pressure.

“Of course, retail sales have been quite strong over the past few months and everyone gets excited about that, but actually if you look at what’s going on, the household savings ratio has come down and, in fact, it’s real. Revenue growth has been negative for three months,” Watling said.

“So it’s not all good news. I mean, on the contrary, I think there are some real challenges for the American consumer.”

His comments came despite data suggesting the US economy may have turned into another stellar performancetowards the latter part of the year.

Gross inner product recorded an annual gain of 4.9%. for the third quarter, according to a Commerce Department report Thursday.

The latest GDP data reflects the strongest US economic output since the last three months of 2021, when growth was just below 7%.

Lots of strategists, asset managers i CEOs remain concerned about the long-term economic outlook and will continue to closely monitor future signals for clues as to whether the US can avoid a recession.

The US economy and its core consumer component have been canceled many times beforebut the Federal Reserve’s move to keep liquidity flowing to the sector has helped in part to sustain growth.

“We see on the margins that the consumer is under a lot of pressure and, in fact, the labor market is also under a lot of pressure. We had a good payroll monthbut if you look at many of the indicators of where the labor market is likely to go, many of them are fraying at the edges,” Watling said.

“We’re going to get to the point in the next few months where I think the labor market starts to deteriorate more significantly and that’s going to set the recession in motion when we get there,” he added.

Asked what his forecast would likely mean for the stock market, Watling said: “I think leadership is probably changing in this stock market. Tech has been under a lot of pressure since July and I think the stock market is struggling to know exactly exactly where he wants to go.”

“From our point of view, though, I see a rebound for a month or two. It’s been pretty advanced, the markets have been going down since July, but I think net net, you want to be underweight in equities if you’re looking beyond that. the next few months,” he continued. “I think the United States is in a difficult time.”

— CNBC’s Jeff Cox contributed to this report.

Correction: This article has been updated to correct the date of Chris Watling’s interview with CNBC’s “Squawk Box Europe.”

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