Amid high interest rates and high inflation, American consumers continue to spend. Consumer spending accounts for about 70% of U.S. GDP. The consumption boom during the COVID-19 epidemic has allowed the U.S. economy to maintain surprisingly strong growth momentum. According to preliminary estimates, U.S. real GDP grew by nearly 5% in the third quarter, the highest growth rate since the fourth quarter of 2021.

The spending boom is bound to lose some of its steam as the effects of reduced consumer savings and rising interest rates are felt. FactSet estimates that real personal consumption expenditures (PCE) growth in the United States will be 2.2% this year, down from 2.5% last year and 8.4% in 2021. However, relatively healthy household finances, a resilient labor market and considerable housing wealth prove that U.S. consumers still have plenty of firepower and that the U.S. economy can avoid recession next year.

“Consumers are expected to continue to drive growth in the U.S. economy for quite some time,” said Olu Sonola, head of U.S. regional economics at Fitch Ratings.

A healthy labor market has been a driving force behind consumer spending. Retail sales grew 3.1% year-on-year in the past three months; the current unemployment rate of 3.9% is close to a record low, and most Americans of working age have a fixed salary. “Consumer spending is very strong because the labor market is very healthy,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution.

After the COVID-19 epidemic began to spread in the United States in February 2020, most economic sectors, including the labor market, declined sharply. But in 2021, driven by the new crown vaccine and government stimulus measures, non-farm employment has exploded, with an average of 605,000 new jobs added every month.

Although job growth slowed last year to an average of 399,000 new jobs per month, it was still more than three times the estimated 100,000 monthly average jobs needed to keep the economy stable. Job growth has fallen further this year toward more normal levels; however, as of October, the three-month moving average of job growth remained at 204,000.

At the same time, job openings are still increasing relative to pre-epidemic levels. U.S. Bureau of Labor Statistics data shows that the number of job openings in September was 9.6 million. Although it was lower than the high of 12 million in March 2022, it was higher than at the end of 2019. of 6.7 million. There are 1.5 vacancies for every person looking for a job.

A large number of job openings and low unemployment continue to put upward pressure on wages. The latest employment cost index shows that the salary cost of civilian employees increased by 4.3% year-on-year in the third quarter. Although it is lower than the peak of 5.1% in the second quarter of 2022, wage growth has been higher than the inflation rate since May 2023. Since wages make up the majority of Americans’ total income, rising wages have a significant impact on financial security and spending power.