The Future of US Consumer Spending: Survey Indicates a Possible Decline

Introduction

The US consumer has been holding up the country’s economy, but the summer of 2023 may mark their last post-COVID-19 hurrah, a new survey indicates.

Survey Results

• The strong consumer spending propping up the US economy may not last, a Bloomberg survey found.
• Over half of the respondents said they think US personal consumption will shrink in early 2024.
• High interest rates and a drawdown of pandemic-era savings could hit consumer spending.

Impact on the Economy

Since consumer spending accounts for about 70% of the US economy, any changes in the measure are a big deal. The resilience of the US consumer has kept the economy going even amid the Federal Reserve’s relentless rate hike cycle since March last year. The US real gross domestic product, or real GDP, grew at an annualized rate of 2.4% in the second quarter of 2023, according to the Bureau of Economic Analysis — a strong beat over Wall Street’s 1.8% growth forecast.

Potential Factors

One in five respondents said the US personal consumption could shrink as early as the last quarter of this year due to high interest rates crimping household budgets and as they run down their pandemic savings. Experts are questioning whether the good times could last longer. “The big question is: Is this strength in consumption sustainable?” said Anna Wong, Bloomberg Economics’ chief US economist. “It is not sustainable, because it’s driven by these one-off factors,” she added, citing one-time splurges on blockbuster movies and concert tours in the summer. Dutch bank ING also said in a September 6 note, that entertainment activities boosted the US economy this summer.

Concerns and Predictions

Shoppers and diners spent a collective $696.4 billion in July, according to the monthly retail estimates from the commerce department. However, researchers at the Federal Reserve Bank of San Francisco said in an August 16 post they expect consumer savings from the pandemic era to run out in the current third quarter. The survey’s findings echo similar views by prominent observers, including top economist David Rosenberg, who said in early August that the Fed’s aggressive rate hikes and the resumption of student-loan payments next month could contribute to a consumer-led recession. Meanwhile, JP Morgan predicted in an August 17 note that the stock market is set to fall as US consumer spending softens.