US Consumer Spending Is Still At A Record High, But That’s Not A Good Thing, Here’s Why
Ordinarily, consumers spending would boost the economy, but the current situation means that the more consumer spend, the higher inflation will increase
Inflation is a word that every American hates hearing at the moment because it is usually followed by high costs and household bills. It seems like it is bothering fewer and fewer Americans as many citizens went on a spending rampage over the last few weeks, and consumer spending is steady.
Spending was higher in retail, restaurants and car dealerships over the last month. Ordinarily, this would be a good thing and boost the economy. But at the moment, it is not. The more consumer spending rises, the more inflation will increase also. Spending is rising when the Federal Reserve continues to push interest rates up to combat inflation. If consumer spending rises, the Federal Reserve may have to increase interest rates again to continue the battle.
But in turn, if consumers were to stop spending altogether, then the reality of a recession could become more apparent. It seems like the US economy is between a rock and a hard place at the moment.
As we are all in the midst of a cost-of-living crisis and an energy crisis, many people are complaining about having a lack of money and barely covering their bills, so why has consumer spending increased drastically?
The rise in personal spending is due to several factors, including a growth in the jobs available, rising wages and an increase in government payments for low-income families and retirees. Social security benefits rose by a mind-blowing 8.7 percent in January, which was the most significant rise in over forty years. Also, over the pandemic, with many businesses and services closed, many people increased their savings, even though they were working from home or getting government relief.
Economists think that because of this increase, consumer spending will not be affected by any rise in essential household bills in 2023. Even traveling is still on the increase. Many people had holidays cancelled over the pandemic, but since travel corridors re-opened, they have been taking full advantage; even holidays to Las Vegas have gone up by 20 percent in 2022.
People are intent on socialising and living their lives since the pandemic, which can be seen in the figures. Consumer spending rose on both goods and services in January.
While consumer spending is rising, that does not mean everyone has money to spend. Some households are still struggling to make ends meet from the pandemic and the rise in inflation. Economists may believe that consumer spending will last another year, but businesses are not. They fear that shoppers may be hitting their limits as spending grew a lot quicker than wages did last year. Even retail giants, Walmart, are projecting little sales growth, unlike in other years. Its CEO is firmly focused on pushing its basic necessities stock to customers rather than more discretionary items.
So while the first half of the year is set to be good for retailers, with conflicting opinions, no one is sure how the second half of the year will turn out. Will the economy bounce back, or will it suffer another blow? Time will tell.
