The Fatalist U.S Consumer

Americans are going to shop until they drop – Inflation and interest rates are up, the labor market is cooling, the pumpkins are out and the Halloween…

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Are Americans literally going to shop until they drop?

Inflation and interest rates are up, the labor market is cooling, the pumpkins are out and the Halloween Federal Reserve meeting is nigh.

All eyes are on any U.S. data that might offer a glimmer of an indication of whether the Great American Shop-a-Thon is, at long last, over.

Many have forecast its arrival, but the long-awaited spending slowdown remains but a mythical creature, appearing and disappearing in the mists. That is to say, U.S. retail sales this week leapt 0.7 percent on the month in September, beating expectations and marking six straight months of upticks.

The data got a boost from gas station and auto sales, reflecting that consumers were more than able to keep up with price increases. Speaking of, the U.S. consumer price index showed headline inflation up 0.4 percent last month in the latest data.

The next several months will be closely watched, as inflation continues to stalk Americans, even as their pandemic savings begins to run out.

Economists told Power Corridor they will be looking at consumers’ spending habits during this year’s holiday season. December, in particular, will be crucial, says one economist, noting consumers’ pandemic savings, “in contrast to last year…don’t exist.” A study from the Federal Reserve Bank of San Francisco supports that contention, showing Americans have now spent more than 90 percent of the “excess savings” they built up during 2020 and 2021.

Yet Americans still seem to be shopping up a storm and, according to multiple reports, are shifting their overall priorities to indulge in feel-good spending right now – with plans to save later, or never.

And the data also support that, indicating American households are spending more and saving less, with U.S. credit card debt shooting to a record $1 trillion for the first time over the summer, despite higher interest rates making the cost of borrowing money more expensive.

The trend may yet continue, if the Fed holds interest rates steady at 5.25-5.50 percent at its Oct. 31-Nov. 1 meeting. But with the American household the primary driver of the nation’s economic growth, the Fed may ultimately need to go head-to-head with the Great American Shopaholic. Who can say will win?

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