The most recent consumer spending data for March was strong (Core Retail Sales up 1.1% and Personal Spending up 0.8%), aided by pandemic savings from stimulus and credit. But there are signs this support may be coming to an end.
A recent article by San Francisco Fed analysts revealed that “American households fully spent their pandemic-era savings as of March 2024.” Meanwhile, credit card debt hit a new record high in the fourth quarter of last year, with balances reaching $1.13 trillion, according to the New York Fed’s Quarterly Report on Household Debt and Credit.
We’ve also seen a growing popularity in Buy Now Pay Later (BNPL) programs, which allow people to purchase something immediately and pay off the balance in equal installments. But BNPL options are also now showing signs of stress.
A recent survey conducted for Bloomberg News by Harris Poll found that 43% of those who owe money to BNPL programs were behind on their payments. Also, within the survey, it was shown that more than 50% said they bought more than they could afford, and over one third said they turned to these programs after maxing out their credit cards. Meanwhile, 24% said their BNPL spending was “out of control.”
What’s the bottom line? Consumer spending makes up 70% or so of GDP, so a slowdown would be significant and could point to a slower US economy, weaker inflation, and lower rates. While this will take time to come to fruition, it will be important to analyze upcoming data for signs of softer spending.