US Consumer Unlikely to Save Economy If AI Bubble Bursts, Man Group Says

The US consumer's ability to drive economic growth is weakening, according to analysis from Man Group PLC, despite the ongoing focus on artificial intelligence advancements. Rising energy prices, significantly depleted household savings, and increasing costs for everyday goods are pressuring American families, the firm noted.

This trend is evident in recent earnings reports. Retail giant Walmart indicated that customers are buying less fuel per fill-up, a sign of budget stress not seen since 2022. Similarly, Costco has reported increased price sensitivity among its members. The fragile resolution to the Iran war also poses an ongoing inflation risk, potentially leading to stagflation or a mild recession.

Man Group highlights a dichotomy in the US economy, where aggregate data, including corporate profits and overall spending, appears robust. However, this strength is largely sustained by a narrow segment of wealthy households whose spending is buoyed by asset gains, particularly in the tech sector. This "K-shaped" recovery means the economy and stock market are disproportionately reliant on a small cohort of high-net-worth individuals.

Compounding these issues, personal savings rates have fallen to their lowest levels since 2008, and consumer debt delinquencies are rising. This leaves the Federal Reserve in a challenging position, as raising interest rates to combat inflation could further contract consumer spending, while holding rates steady risks entrenching inflation.

The analysis suggests that a potential weakening of the US consumer may not trigger the same global economic contagion as in the past. Evolving geopolitical dynamics and a shift towards more insular national policies could mean other regions are more resilient to a downturn in the US.