The economy’s resilience is the result of a strong job market and additional pandemic savings, which have made it possible for people to spend despite inflation and rising interest rates. Strong government hiring — including 214,000 new jobs between July and September — added to the overall strength.
“It’s enough to knock me with a feather,” said Diane Swank, chief economist at KPMG. “We had the most intense credit tightening from the Federal Reserve since the 1980s, and guess what, the economy was accelerating. We underestimated how much consumers could spend.
Americans, especially the wealthy, are still spending big
What is less clear is whether higher borrowing costs could reverse some of these gains in the coming months. Acceleration, say economists Economic growth is likely to slow later this year as pandemic-era savings dry up and millions of families resume student loan payments. A government shutdown, ongoing strikes by actors and auto workers, and worsening wars in Ukraine and Gaza add to the uncertainty.
“The U.S. consumer is hanging on pretty hard and driving the economy forward, but I expect much slower growth later this year,” said Mark Jandy, chief economist at Moody’s Analytics. Percentage in the fourth quarter. “There are a lot of headwinds out there.”
In Cincinnati, Dominique Walker paid off her first student loan in more than three years — which means she’s rethinking all kinds of other expenses, including manicures, massages and morning coffees. She packs a lot of her lunch and expects to spend less than she did this holiday season.
“I had to reorganize things,” said Walker, 32, a hospital data management specialist. “$305 extra a month, that has to come from somewhere.”
The central bank has raised borrowing costs 11 times since March 2022, with the goal of easing the economy enough to stabilize prices. Mortgage rates, at 7.6 percent, are at a two-decade high, and the housing market is all but stagnant. But economists say that has freed up Americans to spend elsewhere. Spending on restaurants, theaters and sporting events has increased over the past few months, supporting continued hiring in those industries.
Inflation, meanwhile, moderated — to 3.7 percent from last summer’s peak of 9.1 percent — which is much higher than the central bank would prefer.
The development is welcome news for the White House, which has invested heavily in infrastructure as part of its “bitenomics” program. But even so $302 billion On spending, it struggled to convince voters that its economic policies were working for them. Biden’s approval ratings on economic matters are lower than ever, with just 32 percent of Americans recently saying they approve of the president’s handling of the economy. CNBC poll.
Wealthy Americans, however, are flush with cash. Jandy estimates that American households still have $1.7 trillion in additional pandemic savings, with the top 20 percent accounting for more than half of that balance.
This allowed many families to indulge in luxuries such as travel and entertainment. Americans spent billions this summer to see Beyoncé and Taylor Swift in concert and “Barbie” on the big screen. Travel is also up: A record 33 percent of American households said they took a vacation this summer, according to a survey by the Federal Reserve.
At Lily Pond Luxury, bookings for luxury vacations are up 40 percent so far this year. Demand has been so brisk that owner McLean Robbins, who ran a one-woman shop before the pandemic, now has a team of 12.
“We’re looking at massive spending,” he said. “It’s all big groups, big rooms, big expenses — I’m talking six figures for Taylor Swift tickets or a trip to Antarctica.”
Even so, Customers are reluctant to book recently – not for financial reasons, but because they are worried about the state of geopolitical affairs. The escalating war between Israel and Gaza and general geopolitical unrest have prevented some new holidays from being locked down.
“We see reluctance in even our most intrepid travelers,” he said. “They’re saying, ‘I don’t know, maybe we should rethink Morocco. There’s a lot of bad things going on in the world.