For Song Seng Wun, a key way to form a view on the health of the economy is to be on the ground and observe the willingness of consumers to spend. This willingness, in turn, is tied to their job security which has a direct bearing on the health of an economy.
Song, Singapore economic advisor of brokerage integrated financial services provider CGS International, loves to traverse to different nooks and crannies of the island. His Facebook page is filled with photos of himself checking out new F&B outlets and revisiting old favourites. The mapo tofu sold by a restaurant along Beach Road, for example, has received his thumbs up because the bean curd that forms the base ingredient of this popular dish has a special texture different from the machine-made, uniformly smooth types, says Song.
“Where are we at this juncture? We are still seeing people eating [out] and opening restaurants and shops,” says Song at an investment forum organised by The Edge Singapore on May 25, as he helps to frame the ongoing discussions on the impact of rate cuts that are taking later than widely expected.
Song recalls that barely half a year ago, as rates were hiked aggressively by the US Fed in its bid to wrestle down inflation, market watchers were still worrying about a recession in the US, given how both businesses and consumers would be hurt from higher financing costs.
Observers were up to their necks parsing the inverted yield curve of US Treasury bonds, as they try to analyse historical patterns and project when a US recession might hit. It has been more than two years since the spectre of a recession in the world’s largest economy has been raised, and yet, for the most recent first-quarter GDP numbers out in April, the US economy managed to grow 1.6% y-o-y, which missed expectations of 2.4% — but is still a growth, nonetheless. “Two years on, we are still waiting for [the] recession, and that doesn’t seem to be anywhere near,” says Song.
Song notes that US consumers and businesses are still complaining about higher costs because of inflation. However, in general, the US economy, especially the services sector, is still creating more jobs, and weekly jobless benefits claim numbers are held steady, suggesting a certain level of demand enjoyed by businesses. Businesses face higher costs but they are still able to invest for growth and report better earnings quarter after quarter, as they ride on the post-pandemic recovery.
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The most recent US CPI for March was 3.5%. up from 3.2% in the year-earlier month. “[US consumers] are complaining about higher costs, but they are still spending,” says Song. Given that this is an election year, marked by plenty of campaigning activities, employment will be supported too, he adds.
Song sums up the current cycle as one where there are elevated costs and steeper costs of borrowing, and these are not coming off quickly. A key factor preventing such costs from dropping is that of resilient consumer spending. “The moment you hear friends losing jobs, that’s a sign. At the moment, it doesn’t look like a rush to cut rates, as relatively resilient consumers can deal with higher costs because they still have jobs,” says Song.
He believes that the US GDP for the second quarter will probably surprise on the upside, given the resilience of US consumers. The US economy is getting another boost with how so many international investors are drawn to invest in US markets which is now at an all-time high.
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As such, there is less pressure on the US Fed to start cutting rates, which is a policy move that has thus proven many pundits wrong, as they dialled back their original projections of multiple rate cuts throughout this year to just one, or at most two towards the end of the year. “It is really a case of going back to the fundamentals,” says Song, referring to the key data points to watch out for.
There is a somewhat similar story in Singapore. According to Song, the most recent Singapore first-quarter GDP growth of 2.7% is a headline number that does not tell the full story. The different sectors performed in an uneven way. The manufacturing sector contracted 1.8% y-o-y, with the main drag from the biomedical manufacturing segment — which plunged 16.7% y-o-y to its weakest month since 2010 — easing in the post-pandemic phase, as demand has dropped. On the other hand, other goods-producing sectors such as construction and transport engineering are chugging along nicely.
The services industries, meanwhile, are showing strong resilience in a continuation of the post-pandemic recovery. As a whole, the services sector expanded by 3.9% y-o-y in the first quarter, up from the 2% recorded in the preceding 4Q2023. Visitors are arriving in throngs — from big-spending business travellers here for conventions and deal-making, to officials and delegations here for international conferences such as the coming Shangri-La Dialogue. Casual tourists — from those happy to splurge, to student backpackers — come to check out the famous sights of Singapore. Song should know, given how he has taken it upon himself to play the occasional tour guide to random tourists who happen to wander into his Tanjong Pagar neighbourhood.
So, despite the seemingly muted GDP headline, the economy remains resilient and while there are occasional reports of job cuts by some tech companies, it is not at a significant level. In fact, more jobs are being created, says Song.
Citing another recent ground-up observation, Song recalls seeing a group of young Singaporeans at a food court exchanging notes on where their holiday destinations are for June, September and even December. Japan is a hot favourite destination. Such observations suggest a clear confidence in the overall health of the job market and therefore a resilient economy, despite costs going up. “If consumers complain and stop spending, then it is a problem. But, they are still going to Japan,” says Song.
