“Barron's Roundtable” host Jack Otter discusses the Biden economy as Treasury Secretary Janet Yellen is expected to take aim at President Trump's impact on the economy and big tech stocks.
Americans' commitment to spending in the face of high inflation and interest rates, which has kept the engine of the U.S. economy running for the past two years, may finally be coming to an end.
Households are drawing down savings and building up historic savings. credit card debtwhich could ultimately put an end to post-COVID-19 spending increases.
“Americans with jobs… money in their pockets I plan on spending time. However, as the economy slows and the labor market softens more than halfway through the year, we continue to believe that last year's holiday spending was something of a last ditch effort for consumers,” said Wells Fargo's Scott.・Mr. Ren stated. a senior global market strategist wrote in a note Wednesday.
The Commerce Department reported Thursday that the economy grew faster than expected in the final three months of 2023, due in part to strong U.S. consumer performance.
When will the Federal Reserve start cutting interest rates?
A woman shops for household items at a retail store in Rosemead, California, on January 19, 2024. (Photo by Frederick J. Brown/AFP via Getty Images/Getty Images)
gross domestic product (GDP)the broadest measure of goods and services produced across the economy, increased by 3.3% Calculated on an annual basis for three months from October to December. This is much higher than the 2% increase expected by economists in Refinitiv, but is a notable drop from the rapid 4.9% pace seen in the third quarter.
Personal consumption, which accounts for about two-thirds of GDP, was a key component of the surprisingly strong numbers. It rose 2.8% during the same period, down slightly from the previous quarter.
However, the report also showed that households were drawing down cash reserves. Personal savings fell from $851.2 billion in the third quarter to $818.9 billion at the end of the year, and the personal savings rate, which measures personal savings as a percentage of disposable income, fell to 4%.
Inflation fight faces 'difficult' last mile
“For the second consecutive quarter, consumers grew spending faster than income growth. Overall, consumers are more willing to tap into their savings and borrow more to support their spending levels,” Mike Reynolds said. appears to be continuing to increase.” , Vice President of Investment Strategy at Glenmede.
He added: “This is probably unsustainable because savings and loans are finite and cannot support consumers forever.”
At the end of the third quarter, US household debt The amount reached a record $17.3 trillion, according to data released by the Federal Reserve Bank of New York. That includes $1.08 trillion in credit card debt, the highest level ever recorded in Fed data since 2003.
January 22, 2024 at a Bloomingdale's store in New York's SoHo neighborhood. (Photographer: Shelby Knowles/Bloomberg via Getty Images/Getty Images)
In addition to relying on credit cards to pay their bills, consumers are also battling price tag fatigue.
Inflation has fallen significantly from its peak of 9.1% in June 2022, but remains well above the Federal Reserve's 2% target. Furthermore, compared to January 2021, he the inflation crisis has begunprices rose by a whopping 17.6%.
caused by high inflation severe financial pressure Most American households are being forced to pay more for everyday necessities like food and rent. Food prices have increased 33.7% since the beginning of 2021, and shelter costs have increased 18.7%, according to FOX Business calculations. Meanwhile, energy prices have increased by 32.8%.
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The burden falls disproportionately on low-income Americans, whose already maxed-out paychecks are heavily affected by price fluctuations.
The typical American household had to pay $211 more per month in December to buy the same goods and services as they did a year ago. Inflation remains high, according to new calculations from Moody's Analytics. Americans are paying an average of $1,020 more each month than they did during the same period two years ago.
