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Despite the significant increase in interest rates over the past 18 months, the US economy has continued to thrive, thanks to a robust job market and strong consumer spending.
All this spending fostered optimism about the possibility of a "gentle economic slowdown," allowing the Federal Reserve to combat inflation without causing widespread job losses for millions of Americans.
Nevertheless, recent indications suggest that the resilience and optimism of the US consumer base may be waning. I'm sure you're not surprised. When food costs have doubled, and some say even tripled in their households, there's not a lot of room for extras.
The restart of student loan payments on October 1 is anticipated to siphon off a substantial $8 billion from consumers each month, which is likely to have a profound impact on overall consumer spending.
Meanwhile, gasoline prices are on the rise, with oil prices reaching their highest point in 2023. There are indications that gas prices may eventually stabilize next year, but not before potentially worsening further.
Additionally, insurance premiums are on the upswing across various sectors, including healthcare, home insurance, and auto insurance, putting added financial pressure on Americans.
And there's more: US personal savings, which experienced a surge during the pandemic, have now significantly decreased. According to data from the San Francisco Federal Reserve, these excess savings could be depleted within the current quarter.
Americans have accrued a record level of credit card debt. In addition, delinquencies on credit cards and auto loans, as well as Chapter 11 bankruptcy filings are all on the rise.
Where are Americans cutting back? Online spending is one sector, where people have decided they'd cut back their internet shopping by a whopping 44 percent. And it's not too hard to guess that travel is right up there on the to-go list, with 43 percent of consumers saying they won't be taking a trip next year. Americans are also reducing or pulling the plug on in-store shopping, gaming, and luxury goods, although that category always confuses me. I have never written "cut back on luxury items" on any sort of list I've made. Gucci purses? Porsche sports cars? Super yachts?
Friends in Florida say attendance was low at the recent Fort Lauderdale Boat Show, which people attend from all over the world. Other anecdotal reports include a story from my cousin, who took her grandson trick or treating in Pennsylvania last week, and said that more than half the houses turned off their lights and didn't give out candy--and this in a neighborhood known for always putting on a great show in their yards and giving out the best candy. My daughter also reported spending $20 a bag on candy from a big superstore.
I read a Big Mac meal in New York City is more than $18 right now. And data shows fewer people are dining out. Airbnb expects bookings growth to slow and average daily rates to fall this quarter, compared with last year, as people opt for cheaper lodging than they did a year ago. And at McDonald's, executives say customers are increasingly leaving off the fries with their meals.
"We are seeing a broadening economic slowdown," said Lydia Boussour, a senior economist. "It started with the housing sector, then manufacturing. And now we're seeing service activity stalling."
My husband and I cancelled a winter trip and I'm relieved. I've suggested teaching him to play backgammon and committing to finding a way to enjoy life without defining it with restaurant meals and time away from home. And as hard as it is to say, I'm not seeing many signs that things are going to get better anytime too soon. Websites like Zero Hedge aren't forecasting a quick end to the impending recession.
One area of concern, as I mentioned is the travel industry. Rental hosts and hotels say demand has fallen sharply, as fewer travelers venture out. In some areas prices have decreased by 22 percent, from about $500 a week to $388, and hosts have started advertising on other sites. There's been a loss in bookings that began in March 2022 and intensified this year.
Suddenly, the directives from others to grow vegetable gardens and save money rather than spend seem to make a lot of sense. It's a good time to come up with a budget and start cutting back on those things that aren't a necessity, always keeping your eye on the bottom line.