If We’re Entering A Recession, Somebody Forgot To Tell ConsumersPandemic-era savings are drying up, but discretionary spending remains high. Bank of America/Business Insider
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We’ve all been hearing grim economic forecasts for a while, but the long-awaited recession has yet to rear its ugly head. That doesn’t mean it’s not still coming, of course, but there’s a ton of evidence that flies in the face of traditional warning signs.
During the pandemic-related shutdowns, many consumers were able to sock away a healthy amount of savings, which translated to increased discretionary spending when businesses started to open up again.
And even though the San Francisco Fed announced its findings that most of that extra savings had already been depleted as of the most recent quarter, consumer spending remains strong.
Here’s a brief overview:
- Bank of America reports that card spending is up 4.5% compared to last year.
- Core spending has increased by roughly 6% when adjusted for inflation.
- Discretionary spending made up 70% of all purchases for those earning $50,000 to $120,000.
Holidays often represent important milestones when calculating consumer spending, and the Labor Day bump this year was higher than in 2022. Even for the month after that holiday, spending remained at an elevated level.
What it means
At any point, the bottom might drop out of the economy, causing spending to plummet. But experts simply don’t see evidence that such a scenario is playing out.
As Bank of America reported: “First, there are no clear signs of cracks yet in consumer spending. Second, we saw a similarly outsized bump around July 4.”
It all adds up to a positive outlook for the final quarter of the year, the financial institution concluded.
But with savings dwindling, student loan payments resuming, and inflation persistently high, some economic insiders are more cautious in their forecasts.