According to Jack Kleinhenz, chief economist for the National Retail Federation, consumers are still buying more now than they did a year ago, but the rate of spending increase is decreasing as the economy contracts.
“A consumer spending slowdown is inevitable,” another analyst asserts, citing factors including inflation, increased interest rates, and impending student loan installments.
Despite numerous interest rate increases intended to curb inflation, consumers have been astonishingly resilient. But there have been recent indications of a change.
Consumer spending is still growing, but at a slower rate than before as the economy stabilizes, according to Jack Kleinhenz, chief economist of the National Retail Federation.
According to Kleinhenz in the August edition of the NRF’s Monthly Economic Review, “there are still unanswered economic questions and challenges, and the rate of consumer spending growth is slowing down gradually.”
Credit card debt reached a record high in the recent year, but personal savings rates decreased. According to a Federal Reserve Bank of New York research, American credit card balances have reached a record $1 trillion as of this year.
However, the G.19 consumer credit report from the Fed, which was released earlier this month, shows that revolving debt, which primarily consists of credit card balances, decreased in June.
According to Bank of America’s most recent consumer checkpoint, credit and debit card spending started to drop in the spring after a robust start to the year.
After three straight months of year-over-year reductions, total card spending gained just 0.1% in July, aided in part by Fourth of July sales, Amazon Prime Day, and Barbenheimer.
According to Kleinhenz, when interest rates climb, households are facing greater financial strain and customers are less likely to pay for items with credit cards. The average credit card APR is currently at an all-time high of above 20%.
Spending patterns are changing, NRF President and CEO Matt Shay remarked on “Squawk Box” on Wednesday. Consumers are currently seeking value and concentrating on necessities rather than frivolous purchases, according to Shay. “Things are different now.
“Consumers are still in a very good spot and they’re still spending,” he said, but “are they consuming in the same ways they were 18 months, 12 months, or 24 months ago? They aren’t.
“A slowdown in consumer spending is unavoidable.”
The head credit analyst at LendingTree, Matt Schulz, predicted a decline in consumer expenditure. The consumer is simply encountering too many obstacles.
This fall’s return of student loan payments will be yet another “huge test,” he noted.
Nobody seems to be certain of how things will turn out, according to Schulz.
“Card spending could go sky high because people with student loan payments need the cards to help them make ends meet or it could shrink,” said Schulz, if borrowers cut back even more on luxuries like vacation and dining out.