Americans continue to show their spending prowess this holiday season, with retail sales seeing a 3% increase from the previous year. However, this spending surge is only just managing to outpace inflation. Despite the slight boost in economic activity, many Americans are still feeling uneasy about the overall state of the economy.
Experts, such as Douglas Holtzegan, President of American Action Forum and former director of the Congressional Budget Office, have examined the current situation. As predicted by some economists, inflation was expected to be a formidable foe and the Federal Reserve's aggressive response was thought to potentially trigger a recession. However, to the surprise of many, these fears have not materialized and the likelihood of a recession seems remote for the time being.
Holtzegan acknowledges the strength of the U.S. consumer as a contributing factor in preventing a recession. Unemployment rates are currently low and employment rates are high. Moreover, there has been a welcome increase in real wages, outpacing inflation over the past six months. These positive indicators suggest a healthy economy.
Nevertheless, there are concerns about increasing credit card debt and delinquencies, as well as a decline in the savings rate by two percentage points in the latter half of the year. These signs point to households digging deeper into their resources to maintain spending levels, raising doubts about the sustainability of this trend.
A puzzling aspect of the situation is the dissatisfaction expressed by some Americans with President Biden's handling of the economy. Despite its relative strength compared to other developed nations, recent polling has indicated a lack of approval. Holtzegan speculates that partisan politics may play a role in shaping public perception of the economy. However, he also highlights the negative impact of inflation on the public's sentiment, compounded by the experienced hardship and struggles during the previous two years when employment was high but income growth lagged behind inflation.
Turning to potential concerns, Holtzegan raises the alarm about rising credit card debt, diminishing savings, and soaring housing prices. While the household sector has been propping up the economy in recent months, the business community appears less optimistic. Business spending, particularly fixed investment, has remained stagnant, which historically has been an early sign of an impending recession. The performance of the business community over the coming months will be crucial in determining its impact on the household sector.
In conclusion, while the current holiday spending surge demonstrates the resilience of the U.S. consumer, concerns linger about the long-term sustainability of this growth. The disapproval of President Biden's handling of the economy may be influenced by partisan politics, but the impact of inflation and previous economic challenges should not be underestimated. As the economy navigates through these mixed signals, the performance of the business community and its potential influence on households will be crucial factors to monitor in the near future.
