U.S. economy struggles with persistent demand deficit

The current economic landscape in the United States illustrates a concerning trend toward a demand deficit rather than solely a trade deficit. Recent indicators suggest that while consumer spending has increased moderately, there are significant underlying issues that threaten to hinder economic growth. Personal consumption expenditures have grown at approximately 2.5%, but rising debt levels indicate that future spending could be constrained, revealing frailty in consumer confidence. Moreover, economic uncertainties such as trade tensions and inflation fears have contributed to decreasing consumer sentiment, highlighting the risk of insufficient demand to support long-term economic health. The article underscores the idea that the issue at hand is not merely the trade deficit, but rather the diminished consumer demand that plays a crucial role in driving economic activity. With consumer demand constituting about 68% of U.S. GDP, it serves as a central pillar in determining business investments, job creation, and overall growth. However, as consumer spending slows down and credit card delinquencies hit a 12-year high, concerns grow that businesses may be forced to cut back on investments and growth pursuits, further exacerbating the issue. Policies regarding monetary, fiscal, tax, and wage regulations directly respond to and impact this demand dynamic. For example, recent interest rate hikes have made borrowing more expensive, which in turn can stifle consumer spending. Fiscal measures like stimulus checks provided a temporary boost but have led to inflationary pressures as the country grapples with sustainable growth. The core argument being made is that while attempts to address the foreign trade deficit may arise, the focus should instead be centered on rekindling American consumer desire and capacity to spend, as this will more effectively catalyze growth. The Trefis High Quality (HQ) Portfolio serves as a case study for this mindset, as it actively focuses on companies that show promise even in challenging economic conditions. By constructing a diverse portfolio that accounts for demand risks, this investment strategy aims to outperform broader market indices like the S&P 500. The evidence presented in the article ultimately suggests that addressing the underlying issues around consumer confidence and spending is paramount to fostering a robust and resilient U.S. economy moving forward.