The US economy is experiencing an unexpected development. Despite the fact that inflation is still high, many American went on a spending binge last month, dining out and shopping for automobiles. In normal circumstances, an economy that is largely reliant on consumerism spending would welcome that increased expenditure.
But all the spending occurs at a time when the Fed is actively hiking interest rates to keep prices in control, heightening the risk that inflation may increase further. Understanding how long that consumer spending may persist is so crucial.
Consumer spending would decline, which would help to reduce inflation, but it would also make people worry about a possible recession. On the other hand, if spending expands at this rate, the Fed may be forced to increase interest rates even more quickly in order to control prices.
The Consumerism Still have Some Capital
Just as it started to look like consumers were running out of steam, they seem to be regaining their momentum. The Commerce Department said on Friday that personal spending increased by 1.8% in January as consumers spent a lot of money on both goods and services like dining out or going to the movies.
Many people have money to spend since there has been significant job growth and salary rise. This year saw an increase in retirees as well. The greatest cost-of-living rise in forty years occurred in January when Social Security payouts increased by 8.7%.
Jonathan Silver Suggests that 2023 will not be Bad as Everyone Thinks
Jonathan Silver, who monitors the usage of credit cards by approximately 100 million Americans, suggests that increased income will encourage consumer spending in the upcoming months. According to Silver, CEO of Affinity Solutions, “We’re positive about ’23.” “We anticipate that the expenditure rate will remain stable.
Also, a lot of people saved extra money in the early stages of the epidemic when there were few opportunities to spend money, and the government was delivering numerous rounds of aid. Although bank balances have decreased, People are still holding a large amount of extra cash.
You may be interested in: China Might Become The Leading Economy In The World