furman8_ANGELA WEISSAFP via Getty Images_consumer spending ANGELA WEISS/AFP via Getty Images

Will US Consumers Keep Spending?

Even though US consumer confidence is low, consumer spending remains strong as households spend down excess savings amassed during the pandemic. But while this trend alone should be sufficient to prevent a recession, it also will continue to put upward pressure on inflation.

CAMBRIDGE – Some analysts predict that the US economy is heading into a recession. But if that is indeed the case, someone forgot to tell consumers. Although consumer confidence plummeted in August 2021 and has been falling ever since, putting it in the same territory as it was during the 2008 financial crisis, household spending is much higher than it was then.

When consumers speak to pollsters, they register a dour mood; but, whether shopping online or in person, they are still buying at an increasing pace. Second-quarter consumer spending is on track to have grown at more than a 4% annualized rate, which would make it among the best quarters in recent decades. The big question, then, is whether the spending boom will last.

After all, consumers have good reason to feel gloomy. Inflation is running at a 40-year high, and real (inflation-adjusted) wage growth is at a corresponding 40-year low. Real disposable personal income per capita fell for five straight months before leveling off in April, leaving it 2.1% below where it was in September. At the same time, consumer spending increased 2% since September, roughly twice its normal annualized rate.

https://prosyn.org/8AMLQsg