WASHINGTON — A flow of recent data from the U.S. government has made one thing strikingly clear: A surge in consumer spending is fueling strong growth, demonstrating a resilience that has confounded economists, Federal Reserve officials and even the sour sentiments that Americans themselves have expressed in opinion polls.
Yet economists caution that such vigorous spending isn’t likely to continue in the coming months. Many households have been pulling money from a shrinking pool of savings. Others have been turning increasingly to credit cards. And the additional savings that tens of millions of households amassed during the pandemic — from stimulus aid and reduced opportunities to travel, dine out and visit entertainment venues — are nearly depleted, economists say.
Still, the truth is no one knows where things go from here, given the unusual nature of the post-pandemic economy. The “death of the consumer” and an ensuing recession have been forecast by most economists for at least a year. So far, not only is no recession in sight but consumers as a whole appear to be in robust health. Spending might cool in the coming months, yet it’s far from clear it will collapse.
The durability of consumers’ willingness to shop has caught the attention of Fed officials, who have signaled that they will keep their key interest rate unchanged when they meet this week. But they’ve also made clear that they are monitoring the economic data for any sign that inflation could reignite and require further rate hikes.
In the meantime, businesses, especially those in the sprawling service sector, are benefiting from what still appears to be pent-up demand, likely driven by higher-income earners, after the restrictions of the pandemic. Last week, Royal Caribbean Group reported robust quarterly earnings. Travelers crowded their cruise ships and spent more even as the company raised prices.
“The acceleration of consumer spending on experiences (has) propelled us towards another outstanding quarter,” said CEO Jason Liberty. “Looking ahead, we see accelerating demand.”
What’s behind the outsize gains, so far? Economists point to several drivers: Sturdy hiring and low unemployment, along with healthy finances for most households emerging from the pandemic. Wealthier households, in particular, have enjoyed substantial growth in home values and stock portfolios, which are likely juicing their spending.
“We continue to believe that you shouldn’t bet against the consumer until actual job losses are on the horizon,” said Tim Duy, chief U.S. economist at SGH Macro Advisers.
With inflation slowing, average wages are starting to outpace price gains.
In many lower-paying industries, like hotels, restaurants and warehouses, companies have struggled to find and keep workers and have raised pay accordingly.
Julia Pollak, chief economist at ZipRecruiter, calculates that for the lowest-paid 10% of workers, wages have jumped 25% since the first quarter of 2020.