Is Consumer Spending Losing Steam?

A new report from Morning Consult suggests that consumer spending in the United States may be losing momentum, despite a strong economy and low inflation. The report highlights several factors that could be contributing to this potential slowdown.

Consumer Health Index at a Low

The Morning Consult’s consumer health index, which combines unemployment data with views on personal financial conditions, is currently at its lowest level in over two years. This index typically moves in line with retail spending figures and data from the Personal Consumption Expenditures (PCE). However, it diverged in June and July, indicating a potential shift in consumer behavior.

“U.S. consumers are losing their appetite for splurging,” states the report. “Consumers have been deprioritizing discretionary spending on both goods and services, the latter of which had previously been a core driver of expansion.”

Discretionary Spending Slows for Price-Sensitive Consumers

The Morning Consult report also reveals that consumers are spending less on discretionary items such as vacations and concerts. This slowdown in spending comes even as price pressures decrease. The report suggests that consumers are becoming more price-sensitive and making decisions based on affordability.

According to the report, consumers are increasingly choosing to skip certain purchases or opt for less-expensive alternatives. This trend indicates that the high cost of living has made consumers more accustomed to avoiding potential purchases due to cost, even as inflation cools.

Factors Contributing to the Slowdown

The report identifies several factors that could be contributing to the potential slowdown in consumer spending:

• Depleted Savings: Many consumers may have depleted their savings during the pandemic, leading to reduced discretionary spending.
• Rising Debt Levels: Increasing levels of debt can also weigh consumers down and limit their ability to spend.
• Price Sensitivity: The high cost of living has made consumers more cautious about their spending, leading to a decrease in discretionary purchases.

These factors, combined with the cooling labor market and dissipating price pressures, suggest that consumers may be reaching their spending limits.

Implications for the Economy

Consumer spending has been a crucial driver of the U.S. economy’s recovery from the pandemic. However, if consumers continue to cut back on discretionary purchases and substitute for cheaper alternatives, it could have broader implications for economic growth.

While the economy has demonstrated strength, underlying weakness in consumer spending could slow down its momentum. The report suggests that the economy may be reaching a point where consumers are tapped out and less willing to splurge.

Conclusion

The Morning Consult report highlights the potential cracks in consumer spending and the impact it could have on the U.S. economy. As consumers become more price-sensitive and prioritize essential expenses over discretionary purchases, economic growth may face headwinds.

Factors such as depleted savings, rising debt levels, and the high cost of living are weighing consumers down and limiting their willingness to spend. It remains to be seen how these trends will evolve and whether the economy can find new drivers of growth to compensate for the potential slowdown in consumer spending.

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