The pace of consumer spending that supports the U.S. economy is finally running out of steam – a test for next year’s economy

The US economy has finally begun to slow down. Recent economic indicators, warnings issued by major retailers such as Walmart, US Regional Federal Reserve Economic Report (Signs of this are increasing, such as comments on the economic situation in the Beige Book.

U.S. household budgets showed unexpected strength through much of 2023, with spending increasing strongly over the summer. But now I’m starting to get short of breath.

Consumers becoming exhausted due to high interest rates and reduced savings is perhaps the surest sign that the U.S. economy is on a downward trajectory heading into 2024. The U.S. economy may face further challenges next year as the labor market cools and wage growth slows.

“The disposable income situation for households is not very good. Employment is slowing and wages are stagnant,” said James Knightley, chief international economist at ING Financial Markets. “Consumer momentum is weakening, and that’s significant,” he said.

October US personal consumption expenditure (PCE) statistics released on November 30 showed a decline in discretionary spending, including on cars, furniture, and gym memberships. Holiday sales are also a little lackluster. According to a Bloomberg analysis, sales at several major retailers decreased on Black Friday, the day after Thanksgiving. During the large online shopping sale “Cyber ​​Monday,” purchases using the deferred payment service “BNPL (Buy Now Pay Later)” reached a record high.

The slowdown in consumer spending will likely be welcomed by U.S. financial officials, who have been concerned that strong consumption would cause inflation to remain high. Futures markets are currently pricing in a rate cut of about 120 basis points (bp, 1bp = 0.01%) in 2024. This is almost double the amount factored in as of mid-October.

Atlanta Fed President Bostic said on November 29, “Personal spending accounts for about two-thirds of gross domestic product (GDP), so if purchasing activity decreases, economic growth will also slow.”The latest data compiled by the Atlanta FedThe Beige Book showed that companies expect sales to grow by 3% over the next year. This is the lowest number in about 10 years, excluding the period of the new coronavirus pandemic.

The August-October (third quarter) financial results of major domestic retailers suggest that the slowdown in consumption has progressed considerably. Walmart expressed concern about the future, citing signs of softening in domestic consumption at the end of October.target’sSame-store sales declined for the second straight quarter as consumers cut back on discretionary spending. Dollar Tree executives cited “increased financial stress” for low-income households.

Economists generally believe that consumption is primarily determined by labor market conditions. The idea is that as long as there is work, spending will continue. There are also signs of cooling in the labor market. The October PCE statistics show that before adjusting for inflation,Wages and salaries increased by only 0.1%, the smallest increase this year. Another statistic is thatThe number of people continuing to receive unemployment insurance has reached its highest level in about two years, suggesting the difficulty of finding a job again.