Unlike past trends, US consumers are spending at record levels. Economists look at the phenomenon with surprise and strive to try to predict its end point.
Against a backdrop of high interest rates, low savings and crippling inflation, Americans are consuming with abandon.
In Black Friday, sales in stores increased 1.1% compared to last year; The record figure of US$9.8 billion was reached on the Internet alone. Meanwhile in Cyber Mondayconsumers spent another $12.4 billion, a striking 9.6% increase over last year.
This splurge follows the pattern of American spending that has kept the country’s economy afloat this past year, accounting for nearly 70% of the 4.9% growth in real GDP in the third quarter.
Although some of the spending reflects the rising cost of basic necessities, Americans continue to purchase big-ticket items and spend a lot of money on experiences such as travel.
This attitude towards money known as “YOLO” (acronym for You Only Live Once. “You Only Live Once”]contradicts spending trends in previous economic downturns.
Some economists have been wondering about the phenomenon, especially since consumer perceptions of the economy remain overwhelmingly pessimistic.
“If we had said 18 months ago that the Federal Reserve could raise interest rates by 500 basis points and the consumer would carry on, relatively unperturbed, I would have been very surprised,” says Ellie Henderson, an economist at Investec bank. “I would have said: ‘that’s not how the economy works.'”
So, How can this phenomenon be explained? These are some of the keys to understanding the consumer fever in the US.
1. Increase in savings
Typically, after a major crisis or labor market downturn, the economy typically experiences a small rebound in both consumer savings and spending.
However, the Reserve Bank of San Francisco reported in May that the post-pandemic increase in fiscal spending this year has soared beyond the growth following any other recession after the 1970s.
Much of that growth, the experts wrote, is due to a “unprecedented” increase in accumulated savings in American households, driven by the US government’s rapid fiscal response to the pandemic.
The stimulus packages that directly introduced US$5 trillion into the US economy – combined with other indirect policies that included eviction moratoriums or suspension of student loan payments – led Americans to save about US$2.3 trillion in 2020 and 2021.
Although people have withdrawn some of their savings this year, many people still have money in reserve – some for the first time in their history – and are willing to spend it now, even if they do not believe there will be a full economic recovery.
This sustained period of “you only live once” spending, amid rising debt and dwindling savings, has baffled many economists.
2. New priorities
The segments younger and upper-middle class of the American population are the ones who lead this type of spending, according to Boston Consulting Group.
Although these people are not necessarily well-off, they earn enough to cover their needs and can spend on leisure trips and luxury items.
Many of them also lean towards the platforms of buy-now-pay-later [“compre ahora y pague después”]which are experiencing strong growth in the US, as occurred during the Black Friday shopping spree in November.
“The strength of consumer spending, even after the dark days of the pandemic, took me by surprise,” says Wendy Edelberg, senior fellow in economic studies at the Brookings Institution and director of the Hamilton Project.
However, although this pattern does not follow economic precedents in the country, some experts maintain that it may be intuitive behavior.
“When you don’t really know what the future holds—or even if there’s a long enough future for you—you focus on the present and the short-term horizon,” says Chiraag Mittal, associate professor of marketing at the School of Marketing. of Commerce at the University of Virginia.
And he adds that, amid behavioral changes around work and life, “People choose to prioritize their happiness and fun”.
Malcolm Harris, author of Palo Alto: A History of California, Capitalism, and the Worldstates that these types of intangible factors are often lost in qualitative analyzes that try to explain macroeconomic trends.
“Work life can change in qualitative ways without being well captured by metrics,” he says.
Although many people continue to work and receive salaries, they are not necessarily happy: for example, salaries are not keeping pace with inflation and people are still recovering from the physical and psychological trauma of the pandemic.
“Although job satisfaction figures seem solid, life happiness indicators are at rock bottom,” explains Harris.
“Given that so much of our lives are related to work, how can analysts square that circle?” he asks.
3. The perception of temporality
As inexplicable as the phenomenon may seem, several economists agree that these YOLO spending patterns They can’t go on foreverand that the economic landscape is about to change.
Henderson warns of significant headwinds ahead that could affect this situation, such as the impact of childcare grants expiring last October and the return of student loan payments.
“How is that not going to affect consumption in the future?” says the economist.
Besides, the credit card debt in the US has surpassed US$1 trillion for the first time and economists predict that the cost of basic goods is unlikely to fall anytime soon, even if inflation is faced.
Henderson predicts that it is only a matter of time before some Americans are forced to tighten their belts and limit their waste.
But after such an exceptional fiscal year, Edelberg isn’t so sure.
“I really don’t know when it will go down,” he says. If he were to take the risk, Edelberg says the change in behavior will occur by the end of the year. However, she says, “I honestly wouldn’t be surprised to be surprised.”
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