Economist forecasts consumer spending dip amid economic shifts
The resilience of consumer spending in 2023, in the face of persistent inflation and heightened interest rates, has been a notable economic phenomenon. However, Jack Kleinhenz, the Chief Economist at the National Retail Federation (NRF), anticipates a downturn in this trend. As discussed in the January edition of NRF’s Monthly Economic Review, Kleinhenz highlights the improbability of sustaining the previous year’s spending momentum.
Despite predictions of an impending recession last year, consumer expenditure continued to escalate, undeterred by inflationary pressures and increased borrowing costs. However, Kleinhenz cautions against expecting a continuation of this trend, referring to it as “not necessarily sustainable.” Recent economic indicators corroborate this outlook. A surge in credit card debt has been observed, with the Federal Reserve Bank of New York reporting a record high of over $1.08 trillion.
This upsurge is coupled with an increase in consumers carrying monthly balances and a decrease in full balance payments. Mark Hamrick, a senior economic analyst at Bankrate, points to a national trend of living paycheck-to-paycheck, which may further strain consumer spending. Despite a robust labor market with low unemployment rates and consistent hiring gains, as reported in December’s jobs report, economists predict a slowdown in payroll growth and a slight rise in unemployment rates.
Kleinhenz also underscores the interplay between consumer spending and labor market conditions, suggesting that cooling employment prospects may dampen wage growth expectations and, consequently, consumer spending. Moreover, he emphasizes the role of the Federal Reserve’s interest rate policies in shaping future credit conditions, noting that despite potential rate cuts, high debt costs are likely to persist. Hamrick echoes this sentiment, acknowledging the ongoing challenges posed by high borrowing costs, despite optimistic projections regarding the Federal Reserve’s actions.