### Summary
📉 Americans could run out of savings as early as this quarter, according to a Fed study. Excess savings are likely to be depleted during the third quarter of 2023.
### Facts
- 💸 As of June, US households held less than $190 billion of aggregate excess savings.
- 💰 Excess savings refer to the difference between actual savings and the pre-recession trend.
- 🔎 San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira estimate that these excess savings will be exhausted by the end of the third quarter of 2023.
- 💳 Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- 📉 The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
Despite initial predictions of a recession, the U.S. economy has experienced unexpected growth, with high consumer spending and continued borrowing and investment by businesses being key factors.
The U.S. economy continues to grow above-trend, consumer spending remains strong, and the labor market is tight; however, there are concerns about inflation and rising interest rates which could impact the economy and consumer balance sheets, leading to a gradual softening of the labor market.
Inflation is causing a decline in affordability for average working individuals, with prices on everyday necessities such as groceries, gasoline, and housing rising significantly in the past two years due to government spending and the Fed's money-printing.
Recent profit reports from companies such as Amazon, Walmart, and Home Depot, along with other consumer statistics, indicate that the case for a 2023 recession is weakening, as the consumer economy shows resilience with rising real incomes, substantial savings, and continued spending in sectors like automobiles and services.
The latest results and forecasts from retailers indicate that U.S. consumer spending is under stress due to increased living costs and existing debts, posing challenges for the retail sector during the back-to-school and holiday seasons.
Consumer spending growth is slowing as the economy stabilizes, with consumers prioritizing essential purchases and adjusting their spending habits in response to rising interest rates and financial pressures.
Consumer confidence in the United States has plummeted as high prices and interest rates deter spending, with the Conference Board's consumer confidence index falling to 106.1 in August from a revised 114 in July.
The U.S. economy grew at a 2.1% annual rate in the second quarter, showing resilience despite higher borrowing costs and a slight downgrade from the initial estimate of 2.4%, driven by consumer spending, business investment, and government outlays.
Consumer spending is driving third-quarter GDP growth, but unsustainable spending habits, tightening lending standards, and the depletion of pandemic savings may lead to a decline in consumer spending in early 2024.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
Concerns about a slowdown in consumer spending are present, but customers are still spending on technology and designer brands; however, if job levels cannot be maintained, there could be a corrective mode due to depleted savings.
Goldman Sachs chief economist Jan Hatzius predicts that US consumers will remain resilient in 2024, with a projected growth of around 3% in real disposable household income, indicating that a decline in real consumer spending is unlikely despite signs of stress.
The US economy grew modestly in July and August, with signs of consumers relying more on borrowing to support spending after depleting their savings, while inflation slowed due to decreasing price pressures in the goods sector, according to the Federal Reserve's Beige Book report.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
Consumer spending in the US has supported the economy despite concerns of a recession, but rising interest rates, the resumption of student loan payments, and dwindling savings are predicted to put pressure on consumers and potentially lead to a shrinking of personal consumption.
Consumer spending in the US is showing signs of cooling, with retail sales expected to slow down in August, indicating that the resilience of the consumer may be waning due to increased borrowing, depleted savings, and the impact of inflation.
Retail sales in the US remained resilient in August, with a 0.6% month-on-month increase, surpassing expectations of 0.2%, indicating a positive trend for the economy.
U.S. retail sales rose more than expected in August due to higher gasoline prices, but underlying spending on goods slowed as Americans faced increased inflation and borrowing costs, while the trend in underlying spending on goods was not as robust as initially thought in July. Despite this, overall consumer spending is expected to remain strong, driven by spending on services.
The US economy shows signs of weakness despite pockets of strength, with inflation still above the Fed's 2% target and consumer spending facing challenges ahead, such as the restart of student loan payments and the drain on savings from the pandemic.
China's economy showed positive signs of recovery in August, with an increase in industrial output, retail sales, and consumer inflation, indicating resilience despite concerns of "stagnation" or "collapse" in Western media reports; willingness to spend also recovered, with an increase in residents' income, per capita consumption spending, and domestic tourism; furthermore, China's exports remained resilient, with a steady increase in the export share of intermediate and capital goods, outweighing the decline in the export share of consumer goods.
The US economy's resilience may be temporary as the trillions in stimulus spending and resulting debts could lead to a long and slow grind, similar to what other nations have experienced, warns Ruchir Sharma.
Despite the uncertainty surrounding the Federal Reserve's interest rates and the potential for a recession, the market has remained resilient and has not overreacted to the news.
Consumer confidence in the US dropped in September, signaling a growing concern among Americans that the economy might be heading towards a recession, as inflation, rising interest rates, and recession fears continue to impact consumers.
The current state of the consumer is concerning as wages are not keeping up with inflation, excess savings from the pandemic have been depleted, and increasing levels of credit card debt are making it difficult to maintain spending levels, leading to potential economic headwinds.
The US economy grew at a 2.1% annual pace from April to June, remaining resilient despite higher interest rates, but consumer spending weakened while business investment and government outlays contributed to the expansion.
Consumer spending in the US grew at a weaker pace than previously estimated in the second quarter, indicating that Americans have been cutting back on their spending more than expected.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
Consumer spending in Minnesota is slowing down as the economy stabilizes after the COVID-19 pandemic, with a shift from goods to services, and rising prices for essential items like housing and gas impacting consumer behavior.
Consumer spending in the US has been strong, driven by a "YOLO economy," but with looming concerns over a recession, financial advisors recommend reassessing budgets, prioritizing spending, paying down credit card debt, and thinking long-term to achieve financial stability.
The majority of American consumers are cutting back on both essential and non-essential items in response to inflation, with 92% reducing their spending, particularly on clothing, restaurants and bars, and entertainment outings; however, despite this, household spending in the US has actually increased by 5.5% compared to last year.
Despite concerns about a weakening consumer and dwindling excess savings, American consumers are still spending, with total card spending likely up 4.5% year-over-year over the past three months, according to Bank of America.
The resilient US consumer and strong job market are boosting consumer spending, which could lead to more Fed rate hikes and upside risks to inflation entering the fourth quarter of 2023.
Consumers are showing signs of slowing down their spending, with growth rates dropping and lower-income households depleting their savings, signaling a low growth, low inflation economy, according to Bank of America CEO Brian Moynihan. Despite the Fed's efforts to tackle inflation, economists remain cautious about the future economic uncertainty.
Economists have raised their US growth projections and reduced recession odds to a one-year low due to strong consumer spending supported by a still-robust labor market, despite high borrowing costs and inflation.
Despite rising inflation, the wealthiest Americans are fueling continued strong economic growth through robust spending on luxury goods and experiences, supported by high asset values and increased equity in their homes, while lower- and middle-income families are pulling back due to the depletion of federal stimulus and pandemic savings.
The United States economy grew at a 4.9 percent annual rate in the third quarter due to strong consumer spending and a robust job market, but this pace is not expected to be sustained in the future.
Consumer spending in the US is expected to remain strong during the holiday season, despite economic headwinds such as inflation and student loan bills, with surveys indicating that a significant percentage of people plan to spend more on holiday shopping compared to last year. However, lower-income consumers may be more cautious and deliberate in their spending.
US consumer spending exceeded expectations, rising 0.7% in September and contributing to the strong economic growth seen in the last quarter, fueled by solid wage growth and drawdown of savings accumulated during the pandemic, although the resumption of student loan repayments and higher borrowing costs pose potential challenges for future spending.
Consumer spending continued to drive economic growth in the third quarter of 2023, as gross domestic product (GDP) increased at a rate of 4.9%, beating expectations and putting recession fears to rest. However, concerns about high mortgage rates and limited housing supply could slow economic growth in the coming quarters.
Consumer spending grew 0.7% in September, outpacing income growth, leading to concerns about the sustainability of spending habits and the overall health of consumers' finances.
