U.S. consumers spent more than expected amid high inflation and high interest rates during 2023, but spending growth is likely to slow in 2024, National Retail Federation (NRF) Chief Economist Jack Kleinhenz said.
“The 2023 U.S. economy was marked in large measure by the impressive resiliency of the consumer,” Kleinhenz said. “A year ago, many commentators were sceptical and calling for a recession, but the recession never came. With each passing month, consumers kept spending despite inflation and higher borrowing costs.”
“Nonetheless, those tailwinds are not necessarily sustainable,” Kleinhenz said. “Tighter credit conditions along with higher borrowing costs continue to be in place now that we’ve turned the page on the annual calendar, and employment reports confirm that the labour market expansion is slowing.”
Kleinhenz’s comments came in the January issue of NRF’s Monthly Economic Review, which said 2023 spending was supported by a tight labour market, a “wealth effect” from a rise in equity and home prices, and savings built up during the pandemic. Inflation-adjusted gross domestic product grew a “solid” 2.3% over 2022. December’s unemployment rate of 3.7% was one of the lowest in decades. And the 4.5% year-over-year increase in wages outstripped the year-end 2.6% rate of inflation as measured by the Personal Consumption Expenditures Price Index followed by the Federal Reserve.
Pandemic savings that boosted spending last year are shrinking, revolving debt has risen to pre-pandemic levels, and consumer confidence has risen but remains low. Recent surveys show consumers are worried by a number of factors – the outlook for income, business and job market conditions slowing because of higher interest rates, ongoing inflation and political stress.