The White House continues to reassure us that the economy is great and Bidenomics is working, but even more data is showing a different story.
Individual consumer spending is a big driver of the American economy, without high demand the economy stalls.
Now new information reveals that consumer spending is coming to a screeching halt, indicating there’s some serious economic pain ahead.
The economy prepares for a cool-down
The bank Wells Fargo recently sent a note to its clients, alerting them that the U.S. economy is getting ready to cool down considerably in the next few months.
While Americans once spent their money at a rapid pace, those days are soon to be over.
Wells Fargo senior global market strategist Scott Wren warned clients that retail spending will likely slow down in 2024 as the job market sees layoffs rise.
“Americans with jobs and money in their pockets are going to spend. However, as the economy slows as we move through the middle portion of this year and the labor market softens, we continue to believe that the holiday spending that occurred last year was a bit of a last hurrah for the consumer,” Wren wrote.
It was consumer spending that fueled America’s economic engine for the bulk of 2023, even while people faced extremely high inflation and high-interest rates.
According to a recent government report, the economy grew 3.3 percent in the fourth quarter, partially fueled by strong consumer spending numbers.
But the report also uncovered that many households are dwindling their cash reserves as personal savings fell from $851.2 billion in the third quarter to $818.9 billion at the end of the year.
The personal savings rate, which measures peoples’ personal savings as a percentage of their disposable income, dropped to 4 percent.
Mike Reynolds, Vice President of investment strategy at Glenmede, said, “It appears consumers continue to be increasingly willing to tap their savings stream or borrow money to support spending levels. This is likely unsustainable as savings and lending are finite and should not be able to prop up the consumer in perpetuity.”
Debt is a bigger concern
While a slowdown in consumer spending is certainly one indicator of a cooling economy, debt is an even bigger source of concern.
U.S. household debt reached a record high of $17.3 trillion at the end of the third quarter, according to data from the Federal Reserve Bank of New York.
Part of that household debt included a whopping $1.8 trillion in credit card debt, which is the highest level ever recorded based on Fed data dating back to 2003.
While Americans did increase spending during the holiday season, many turned to credit cards to do so, all while prices on goods like cars, food, and gasoline rose by 0.6 percent in December.
To put things in perspective, a typical U.S. household had to pay $211 more a month in December to purchase the very same goods and services it did just one year ago thanks to high inflation.
Now, Americans are paying close to $1,020 more each month on average compared with the same time two years ago.
Informed American will keep you up-to-date on any developments to this ongoing story.