JPMorgan: Something Has Gone Wrong With the Global Consumer

"It would be difficult to overstate the recent downside surprise in global consumer spending," writes JPMorgan Senior Global Economist Joseph Lupton.

Though retail sales in the U.S. have missed expectations for five consecutive months, disappointing consumer spending is far from just a made-in-the-USA story, he observes.

"Something has gone wrong with the global consumer, and the course of the global expansion over the coming year depends on whether the recent stumble in spending growth is a temporary soft patch or indicative of under appreciated headwinds," he explains in recent research, noting a deceleration in consumer spending in both developed and emerging markets.

Buoyant global equity markets, strong employment growth, and the near-halving of oil prices appeared to set the stage for global retail sales volume to pick up steam this year.

Instead, the three-month growth rate has decelerated substantially:

The drop means that JPMorgan's model for global retail sales – which incorporates employment growth, inflation, and stock price appreciation to come up with a forecast – hasn't been so off the mark in over a decade, excluding the financial crisis:

Here's Lupton on the magnitude of the miss:

Clearly, something is off track, in our view. ... The next few months will be crucial for determining whether the global consumer spending is shifting for reasons beyond the typical fundamentals. By their nature, model errors are not always easy to explain and if they are, it is usually due to temporary factors and not to more secular shifts. While it is tempting to reassess whether unforeseen headwinds are at work (secular stagnation, another leg of deleveraging, pent up demand for saving, etc.), one has to explain why these low-frequency drags suddenly asserted themselves with a vengeance in the last three months.

So Lupton isn't ready to throw in the towel on the global consumer just yet. Though the economist expects domestic demand in emerging markets to remain relatively sluggish, this will be more than offset by a pickup in retail sales volumes in advanced economies.

He cautions, however, that the recent rally in oil prices and slowdown in employment growth weaken the fundamentals of his case.