American shoppers just keep on spending, lending vital support to the economy. The question is: How long will it last?
What's happening: Americans appear to be indulging in a healthy dose of retail therapy despite stubbornly high inflation and the possibility of a recession ahead.
Preliminary Black Friday and Cyber Monday numbers point to a strong holiday season, despite earlier concerns that it could turn out to be weak.
A record 197 million Americans did some holiday shopping between Thanksgiving and Cyber Monday, according to a survey by the National Retail Federation. That's a 10% increase from last year. Shoppers spent an average of about $325 on holiday-related purchases over the weekend, higher than last year's $301. The group predicts that overall holiday sales will rise by between 6% and 8%. While that would be slower growth than last year, it's above historical averages.
Shoppers also set a new record on the biggest online shopping day of the year. They spent a total of $11.3 billion on Cyber Monday, representing 5.8% growth year-over-year, according to Adobe Analytics.
The continued strength of the US consumer is nearly single-handedly staving off recession in the US, Bank of America CEO Brian Moynihan told CNN on Tuesday. Americans are still employed, they still have money in their bank accounts and they're still spending that money, he said.
Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to NRF.
The Federal Reserve said in a report last month that US households still have a nice chunk of their pandemic savings left. They still have access to $1.7 trillion, about 75% of the total cash that households collected and saved during the pandemic. That reserve is steadily shrinking. But there's still enough left to support strong consumption... For now.
"At the end of the day, the consumer has held in well, and at the end of the day the consumer stays responsibly strong," said Moynihan.
A double-edged sword: Resilient consumers are typically a good thing. But when the Federal Reserve is actively trying to squash high inflation rates, they risk becoming a fly in the ointment.
"Consumers' spending is more or less unfazed not only by high inflation, but also the rate hikes intended to get prices under control," economists at Wells Fargo wrote.
The high rate of spending could agitate investors in this good-news-is-bad-news economy because it adds to inflationary pressures. That means the Fed may use the strong data to keep hiking interest rates.
A slowdown in consumer spending could lead to recession and short-term economic pain, but some economists say that's still a better outcome than the long-term pain entrenched inflation could bring.
Paying the check: While American bank accounts are still fairly robust, they're beginning to dwindle. In the third quarter of 2022, credit card balances jumped 15% year-over-year. That's the largest annual jump since the New York Fed began keeping track of the data in 2004.
US consumer confidence fell in November to its lowest levels since July. That's the second month in a row that the headline number has fallen.
"Intentions to purchase homes, automobiles, and big-ticket appliances all cooled. The combination of inflation and interest rate hikes will continue to pose challenges to confidence and economic growth into early 2023," said Lynn Franco, the Conference Board's senior director of economic indicators, in a statement.
Economists take this to mean that spending can't stay this strong for much longer. At some point, the pandemic-era savings levy will break, said Chris Rupkey, chief economist of FwdBonds LLC, in a note on Tuesday. "That will take the wind out of the consumers' sails in a hurry," he said.
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