Zuma Global President Heather Zumarraga talks to Varney & Co. about consumer spending habits for the 2023 holiday season.
The U.S. economy is expected to cool significantly in the coming months as the once rampant spending by U.S. consumers finally comes to an end, according to Wells Fargo.
Scott Wren, senior global market strategist at Wells Fargo, warned in a recent note to clients: retail spending The economy is likely to slow into 2024 as the job market eases and layoffs begin to increase.
“Americans with jobs… money in their pockets “However, we continue to believe that last year’s holiday spending was a last ditch effort as the economy slows and the labor market softens as we pass the middle of the year,” Wren wrote. For consumers. ”
Consumer spending powered the economy for most of 2023, even as shoppers battled high inflation and interest rates. In a recent government report, the economy has grown In the fourth quarter, it was 3.3%, driven in part by strong consumer spending.
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A shopper carries a Target bag on Market Street in San Francisco on November 29, 2022. (David Paul Morris/via Bloomberg/Getty Images)
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%.
“Consumers appear to continue to be more willing to tap into their savings and take on more borrowing to support their spending levels,” said Mike Reynolds, vice president of investment strategy at Glenmede. “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 New York Fed. That includes $1.08 trillion in credit card debt, the highest level ever recorded in Fed data since 2003.
Another report suggests that Americans increased their spending during the crucial holiday season, but also borrowed money to do so. retail salesA measure of how much consumers spend on many everyday items such as cars, food and gasoline rose 0.6% in December, more than expected.
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A woman shops for household items at a retail store in Rosemead, California, on January 19, 2024. (Frederick J. Brown/via AFP/Getty Images)
“Just because the year-end sales season is strong, I don’t think consumer power will continue to be strong until the middle of the year,” Mr. Wren said. “We expect the economy to slow significantly through the middle of this year, and we think consumer goods companies will remain cautious,” he said.
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.
