US consumers' spending high in '23, set to slow in '24: NRF economist

In 2023, spending was supported by a tight labour market, a ‘wealth effect’ from a rise in equity and home prices, and savings built up during the pandemic. Inflation-adjusted gross domestic product grew a ‘solid’ 2.3 per cent over 2022, according to the January issue of NRF’s Monthly Economic Review.

December’s unemployment rate of 3.7 per cent was one of the lowest in decades. And the 4.5 per cent year-over-year (YoY) increase in wages outstripped the year-end 2.6 per cent rate of inflation as measured by the Personal Consumption Expenditures Price Index followed by the Federal Reserve.

Kleinhenz said: “The 2023 US economy was marked in large measure by the impressive resiliency of the consumer. A year ago, many commentators were sceptical and calling for a recession, but the recession never came. With each passing month, consumers kept spending despite inflation and higher borrowing costs.

“Nonetheless, those tailwinds are not necessarily sustainable. Tighter credit conditions along with higher borrowing costs continue to be in place now that we’ve turned the page on the annual calendar, and employment reports confirm that the labour market expansion is slowing.”

Unadjusted for inflation, consumer spending was up 5.2 per cent year over year in October and November, boosted by a 7 per cent YoY increase in disposable personal income. Core retail sales—excluding automobile dealers, gasoline stations and restaurants—were up 3.7 per cent year over year for the first 11 months of the year.

Despite that, job openings fell to 8.79 million in November, the lowest level since March 2021. And while the Labor Department reported nonfarm payroll growth of 216,000 jobs in December, the net growth in private-sector jobs was only 68,000 after accounting for downward revisions to previous months’ job growth.

“The labour market looks set to cool further this year, which will impact consumer expectations for employment and wage growth, and, in turn, affect spending decisions,” Kleinhenz added. “Spending is elevated relative to current income, and maintaining the recent pace of growth will be increasingly difficult.”

Pandemic savings that boosted spending last year are shrinking, revolving debt has risen to pre-pandemic levels, and consumer confidence has risen but remains low. Recent surveys show consumers are worried by a number of factors—the outlook for income, business and job market conditions slowing because of higher interest rates, ongoing inflation and political stress.

Kleinhenz said a key question in the outlook is what the Fed will do with interest rates. The central bank has indicated that rate hikes are likely over and that the benchmark federal funds rate—currently 5.25-5.5 per cent—could be cut to 4.6 per cent by the end of the year.

Fibre2Fashion News Desk (DP)