Americans have been on a spending binge since Covid lockdowns began, defying many predictions with their persistence. Can it keep going? Robin Wigglesworth reports in the Financial Times:
The biggest driver of the surprisingly resilient US economy has been the ability and willingness of Americans to shrug off the bad vibes and buy “everything that isn’t nailed down”, as Chris Rupkey puts it.
Consumer spending doesn’t seem to be slackening much either. Quarter-on-quarter growth did slow from a blockbuster 4.2 per cent in the first three months of 2023 to 1.7 per cent in the second quarter, but it’s currently tracking at 3.2 per cent in the current one.
This is the main factor that has confounded the hard-landers, as Ed Yardeni wrote this week:
Forecasters who’ve long been expecting a hard landing of the economy made a big mistake in betting against American consumers. But the hard-landers are not accepting that consumer spending isn’t going to retrench; instead, they’re doubling down by predicting that it will happen soon, because consumers are running out of pandemic-related excess savings now and have too much consumer debt. In addition, payments on student loans are about to resume.
It’s easy to see what’s juicing the spending splurge. Yes, sure, inflation is still high, but real incomes are growing at about 4 per cent a year, according to Goldman Sachs:
And after being briefly short-circuited by pandemic lockdowns, the intimate relationship between real income growth and spending has reasserted itself:
But what about the future? There’s been a lot of monetary tightening over the past year that will only hit the economy with the proverbial long and variable lags. Mortgage rates have climbed over 7 per cent, and the labour market is beginning to cool down.
Read more here.