The Consumer as the Driving Force of Economic Recovery
The economy’s recovery from the shockwaves of the pandemic has been remarkably driven by one key player: the consumer. With a surplus of savings and a robust labor market, Americans have engaged in enthusiastic spending, first on tangible goods like furniture and electronics, and more recently on services such as air travel and dining out. However, a pressing question looms: how long can this consumer-driven spending spree continue?
Despite fluctuations in global markets, many economists advise against immediate alarm—at least for the time being. In July, there was a noticeable deceleration in hiring, alongside a rise in the unemployment rate, which reached its highest level since October 2021. Nevertheless, consumer spending has shown resilience. Wages are on the rise, albeit at a slower pace, and job cuts remain relatively low. Gregory Daco, chief economist at the consulting firm EY-Parthenon, remarked, “Overall, there isn’t evidence of a retrenchment in consumer spending.” This steadfastness in consumer expenditure played a pivotal role in facilitating greater-than-expected economic growth in the spring.
However, this momentum could potentially falter if the slowdown in the labor market intensifies. Already, certain consumers—particularly those with lower incomes—are grappling with the dual challenges of soaring prices and elevated interest rates, which are increasingly straining their financial circumstances. Indicators such as rising credit card delinquencies and an increase in household debt paint a concerning picture. Moreover, pandemic-era savings have diminished significantly, with Americans saving just 3.4 percent of their after-tax income in June, down from 4.8 percent the previous year.
In discussions with investors and during meetings in corporate boardrooms nationwide, company executives are starting to acknowledge a shift in consumer behavior. Customers are no longer spending with the same abandon as before, prompting businesses to prepare for a continuing downturn in discretionary spending. Brian Olsavsky, Amazon’s chief financial officer, noted during a recent call with reporters, “We are seeing cautious consumers. They’re looking for deals.”
