Interest rates are on the rise. Inflation remains high. Savings accumulated during the pandemic have dwindled, and the job market is cooling down.
However, household spending, the main driver of the country’s economic growth, remains robust. Americans spent 5.8% more last August than the previous year, far exceeding inflation of less than 4%.
The leisure and entertainment economy, in particular, grew this summer. Delta Air Lines, for example, reported record revenue in the second quarter, and Ticketmaster sold over 295 million tickets for events in the first six months of 2023, an increase of nearly 18% year over year.
Economists and financial advisors say it is normal for consumers to prioritize short-term needs and goals over long-term ones. Still, they say this moment is different.
The inaccessible housing market has led more consumers to stop saving for the long-dreamed home. On the other hand, the pandemic has shown the instability of any long-term plans. So why not spend on unique experiences since there is no guarantee we will be able to realize them later?
The fear of climate change is also driving some people to try to visit places before they ‘disappear.’ In a monthly study by Deloitte with 19,000 global consumers, climate change was the only topic among 19 listed that respondents reported feeling significantly more concerned about over the past year.
In the August Household Spending Survey from the Federal Reserve Bank of New York, families reported spending 5.5% more than last year. The percentage of families that reported making at least one major purchase in the previous four months increased from 57% to 64%, the highest level since August 2015.
Experts say that typically, during a time of higher inflation and interest rates, high spending levels are not expected to be sustained.
However, it is believed that consumers will not be able to keep spending forever. Labor strikes and the return of student loan payments may lead people to pull back. Rising fuel prices could also put a damper on travel.
Source: The Wall Street Journal