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Consumer spending has fueled the economic recovery following the impact of the pandemic. Now, portfolios are smaller and some are feeling the difference.
By Sydney Ember, Jordyn Holman and Julie Creswell
The resurgence of the economy after the surprise of the pandemic is explained through a single engine: the consumer. Flush with savings and buoyed by a booming job market, Americans spent exuberantly on goods like furniture and electronics, then on services, air conditioning, and restaurant meals.
The question is how long this expense will last.
Despite the contortions in global markets, many economists warn that there is no explanation for panicking – at least not yet. In July, there was a noticeable slowdown in hiring and an increase in the unemployment rate to its highest point since October 2021, but customer spending remained robust. Wages are rising, albeit at a slower pace, and job losses remain low.
“Overall, there’s no evidence of a slowdown in customer spending,” said Gregory Daco, chief economist at consultancy EY-Parthenon. Strong spending helped fuel a better-than-expected economic expansion in the spring.
That could change if the labor market slowdown accelerates.
Some consumers, especially those with lower incomes, are already feeling the double effect of emerging costs and interest rates weighing on their finances. Credit card defaults are on the rise and household debt has skyrocketed. Pandemic-era savings have declined. In June, Americans accumulated only 3. 4% of their after-tax income, compared to 4. 8% a year earlier.
On calls with investors and in boardrooms across the country, business leaders acknowledge that consumers are no longer spending as freely as they once did and are in favor of the decline continuing.
On Wednesday, Disney cited a “moderation in customer demand” that “exceeded our past expectations” regarding the challenging new outlook for its theme parks, key to its profitability. “The lower-income customer is feeling a little bit of stress,” as they have less to spend on entertainment, Hugh F. Johnston, Disney’s chief monetary officer, told analysts.
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