After stronger-than-expected US GDP growth, Jefferies Senior US Economist Thomas Simons joins Yahoo Finance Live to discuss resilience in consumer spending. He says that despite headwinds, the US consumer seems "back to its old ways in terms of the American spirit" based on robust holiday and recreational activity.

Simons acknowledges "it seems like the consumer should be... ripe for a slowdown." However, he observed the second half of 2023 proved "quite strong," with demand mirroring pre-pandemic norms.

Looking ahead, he expects "we're about to hit a soft patch" in the labor market in 2024 if anticipated consumer pullbacks occur. Simons believes businesses are shifting towards more part-time work rather than layoffs, since employers know "it's really, really hard to find people."

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Editor's note: This article was written by Angel Smith

Video Transcript

JULIE HYMAN: Let's broaden it out and talk about the US economy, experiencing a faster rate of growth than expected in the fourth quarter, the latest data highlighting consumer resilience despite ongoing concerns of a slowdown.

For more on what the latest signposts indicate about the state of the economy, let's welcome in Thomas Simons, Jefferies Senior US Economist. Thomas, thanks for being here. So your note in reaction to this, I thought was interesting, where you say you were expecting a capital K, maybe now it's a lowercase k. Basically, what you're talking about is the resilience, in particular, of the middle to upper income consumer, if I'm reading it right.

THOMAS SIMONS: Mm-hmm.

JULIE HYMAN: So how strong is that group right now?

THOMAS SIMONS: So for the second half of last year, I think it's undeniable that there were very strong. You know, I mean, we've been looking for this pullback in spending. And you're looking at credit metrics deteriorating and more reliance on things, like buy now, pay later, and just thinking about the accumulated level of inflation that we've experienced over the last couple of years. It seems like the consumer should be sort of ripe for a slowdown.

But instead, the second half of this year was-- was quite strong. We have very strong spending over the summer on recreational activities, and all sorts of other services as the economy really experienced the most normal sort of summer, most-- sort of similar pre-pan-- to pre-pandemic conditions summer that we've seen in four years. And they continue that momentum into the holiday season as well.

I'm skeptical that we'll get a continuance of that as we get through into-- into Q1. But at least for now, it looks like the consumer was, you know, back to its old ways in terms of the, you know, American spirit here for the second half of 2023.

- Yeah, Thomas. You know, it's interesting just kind of combing through some of the earnings report we got recently. Just this week, you know, Procter Gamble, Kimberly Clark, when you listen to them kind of talk about the consumer, they were saying, you know what? The consumer is looking OK. It's-- they're holding up here. I am interested. Thomas, to get your take on the labor market. I don't know if you heard-- Julie and I were just talking about that.

It certainly seems sturdy now, Thomas, sub-4% unemployment, wages growing. But when you look at-- at the labor market over 2024, Thomas, what's the trajectory? What are you seeing there?

THOMAS SIMONS: So I think we're probably about to hit a little bit of a soft patch in the labor market, especially if we do see this slowdown on the consumer side that we're expecting. There will be margin compression amongst businesses, right? So I think that what we've seen in the labor market data for the last few months is that there's been this decline in demand for labor that we can see with lower job postings, whether it's Indeed or the JOLTS data.

You know, we do see slightly fewer demand, you know, slightly fewer openings, right? You also see the hours worked data from the BLS that's coming down. So it seems like employers are shifting towards, you know, trying to maybe cut shifts or shift more towards part time work rather than letting people go.

You know, I do think that there's still amongst businesses, this idea that it was really, really hard to find people in the, you know, sort of post-pandemic recovery period. It's going to be really hard to find people again at some point, if there is, you know, even if people start to get-- to let go.

So the jobless claims data has been really low. I-- I think that there's probably some element of, you know, perhaps, a lack of a sense of urgency on people who have been laid off because it's been relatively easy for most of them to go get a new job, following a layoff in the last year or so.

Also, a lot of people, especially in these tech firms that are higher income earners, probably sitting on a substantial amount of savings and-- and household equity that they can rely on. So they're not-- it's not like it was in, say, 2007 when everybody was levered to the eyeballs and mortgage debt. And if you lost your job, you knew you were going to lost-- lose your house very quickly.

We'll-- we;ll see if, you know, conditions evolve towards that. But so far, you know, we're-- we're sort of at this long plateau period, I think, in the top of the cycle for the labor market.