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Holiday cheer or drear: Our take on consumer headwinds ahead
By: Edward Jones
As we head into year-end and the holiday shopping season, there are questions as to whether the consumer can continue to spend at the same robust pace. We look at three factors below that suggest some slowing in consumption ahead:
1. Savings rates have declined
One unique factor coming out of the pandemic period was that households were flush with stimulus cash. According to the San Francisco Federal Reserve, households had accumulated about $2.1 trillion in excess savings in 2021. However, much of this may now be depleted, as consumers have spent on both goods and services over the past two years.
Household saving rates have also declined to near post-pandemic lows, as the chart below highlights, indicating that many consumers are spending much more than usual instead of saving. This comes as costs have risen and stimulus-era savings have declined. Households in lower income brackets may especially be feeling the pinch of lower savings and the need to spend more on both goods and services, as inflation remains elevated. While we haven't seen consumers pull back meaningfully on spending yet, if savings rates return to a pre-pandemic average of around 6% over time (from around 3.4% currently), consumption may naturally moderate as well.
2. Credit card balances have increased and delinquencies are ticking up too
As personal savings rates have decreased, we have also seen consumers increase their overall credit card debt. The total credit card debt in the U.S. has risen to over $1 trillion as of the third quarter of 2023, its highest on record.
3. Bank lending standards remain tight
And finally, we know that consumers continue to face higher rates and tighter bank lending standards as well. Last week, the Fed's quarterly Senior Loan Officer's Survey showed that banks are still making it tough for consumers and businesses to borrow. The standards for obtaining loans for consumers, as well as for small, midsized and large businesses, have gotten tougher, as banks continue to keep their loan requirements elevated.
Edward Jones - Mae Luchetti