Consumer spending helped carry the U.S. economy past recession forecasts in 2023 an🌳d has remained resilient so far this year even in the face of continued high inflat꧙ion and interest rates that remain at two-decade highs.

The pace of spending has started to slow, however, and economists expect it to moderate further in the back half of 2024. Lower income shoppers are likely to pull back the most, particularly when it comes to 澳洲幸运5官方开奖结果体彩网:discretionary spending, while higher-income spenders are 🌺expected to keep the economy moving forward, economists say.

Spending Expected to Slow Down

A slowdown in real disposable income growth, along with a cooling labor market, higher tax payments and 澳洲幸运5官方开奖结果体彩网:persistent inflation, helped drive 澳洲幸运5官方开奖结果体彩网:spend🌳ing lower in the first quarter, according to Oxford Economics, which forecasts that consumer spending will continue its gradual slowdown in the second half of the year.

“The weaker 🅷personal income and spending numbers, together with the downward revisions to consumption growth for the first quarter, h꧙ave raised concerns that the core engine of the economy is slowing,” wrote Oxford Deputy Chief US Economist Michael Pearce. “Consumer spending growth is moderating from last year, though we expect only a gradual slowdown at best over the second half.”

Wells Fargo also identified slower spending trends, lowering 🔥its consumer sꩲpending growth estimate by more than a percentage point for the second quarter to 1.9%. 

BMO Economics has also lowered its expectation for consumer spending and expects the slowdown to continue. “We exไpect this moderation in income and demand growth to hang over the U.S. economy’s performance for much of this year,” BMO Chief U.S. Economist Scott Anderson wrote.

Younger, Poorer Consumers Feel the ‘Squeeze’

Recent data from the Census Bureau showed that 澳洲幸运5官方开奖结果体彩网:retail sales rose just 0.1% in May compared to the previous month, which was a weaker reading than economists had expected. In addition, April’s sales figures were revised to a 0.2% decline rather than staying flat as the bureau initially reported.🌄

Oxford Economics notes that household balance sheets remain resilient, with assets rising while debt relative to income has dec꧑lined. “Middle- and high-income households, who are responsible for most consumer spending, remain in strong shape,” Pearce wrote. 

However, data show that younger and poorer households missed out on the opportunity to build savings duri𝔍ng the pandemic and are now relying on a strong laꦰbor market to keep up their spending.

“That explains w﷽hy their spending has been squeezed, and a subset of consumers relying on credit cards are increasingly facing delinquency and default,” he wrote.♈

Discretionary spending on things like recreation, entertainment and eating at restaurants and travel will likely be cut back, as will big-ticket 🌌purchases made on credit.

“Businesses need to prepare for an environment where consumers are not sp💫lurging like they were last year,” sa♛id Jeffrey Roach, LPL Financial chief economist.

Fed Closely Watching Consumers Amid I🌠nflation Fight

The Federal Reserve raised interest rates to 澳洲幸运5官方开奖结果体彩网:decades-high levels in order to keep prices from spiraling out of control. Now, with interest rates elevated for more than a year, officials are looking at consumer spending numbers to see if the increased borrowing costs are serving their intended purpose of slowing spending enough to 澳洲幸运5官方开奖结果体彩网:keep price hikes in check.

The effect of interest rates can be seen on consumer spending in some categories, Federal Reserve Gov. Governor Adriana D. Kugler said earlier this month, especially as 澳洲幸运5官方开奖结果体彩网:pa🤪ndemic-era savings are spent down.

“While consumption growth has been resilient over the 👍past couple o🌱f years, fueled in part by excess savings accumulated during the pandemic and solid real wages that now exceed pre-pandemic levels, it slowed noticeably in the first quarter, especially for spending on goods,” Kugler said at a recent event in Washington, D.C.

“High interest rates have left a mark on consumer assessments of buying conditions for motor vehicles and other large durable goods, which often have to be financed,” Kugler added.