In apparent disregard of persistent record-high inflation, new reports find that U.S. consumers are showing no signs of backing off their ongoing penchant for robust spending but are, increasingly, covering their high roller habits with credit cards.

And while the formula isn’t sustainable over the long haul, economists say most U.S. households are still in pretty fair fiscal shape going into the maw of the holiday shopping season.

Shop ‘til ya drop

On Wednesday, the U.S. Census Bureau released its October retail and food service sales report, finding consumer spending was up 1.3% over September and 8.3% over the same time last year. Total sales for the August 2022 through October 2022 period were up 8.9% from the same period in 2021.

It’s a metric that has been vexing the Federal Reserve in its attempts to cool down the economy, aka reduce consumer spending, through a series of aggressive benchmark interest rate hikes this year. Fueled in part by lingering federal stimulus cash and a shift from services to goods amid pandemic restrictions, the high level of spending has been a boon for U.S. retailers who have been cashing in for the past few years. And, according to fresh predictions on sales volumes for the upcoming holiday shopping season, U.S. consumers are likely to keep their spending mojo rising for at least the next few months.

But, as those once vibrant savings account balances dwindle, and wage growth continues to lag well behind the pace of price increases, it appears many consumers are keeping their spending up by shifting how they’re paying for all those goods and services.

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Time for a magic plastic ride?

On Tuesday, the New York Federal Reserve reported that U.S. consumer debt rose by $351 billion in the third quarter of the year, reaching $16.51 trillion. Mortgage balances — the largest component of household debt — climbed by $282 billion and stood at $11.67 trillion at the end of September. And, credit card balances rose by $38 billion over the second quarter of 2022 and are now 15% higher than the same time last year, marking the highest year-over-year increase in more than 20 years, according to the report.

In an analysis of the new retail spending data and the New York Fed report, Wells Fargo economists Tim Quinlan and Shannon Seery noted the jump in consumer debt represented the largest annual increase since the Great Recession and could be a foreshadowing of future peril, should consumers over-leverage their spending by continuing to accumulate new debt.

“Even with continued consumer resilience, some cracks are slowing forming in the foundation,” Quinlan and Seery wrote. “Households have increasingly relied on credit to spend and increased overall debt $351 billion in the third quarter, putting the total debt burden for households at $16.5 trillion, according to data released (Tuesday) by the NY Federal Reserve. That’s an increase of 8.3% from a year earlier, the biggest annual increase since a 9.1% jump in Q1-2008 at the start of the 2008-2009 recession.

“Near-term consumer resilience will come at a further deterioration in household finances as households draw down savings and accumulate debt to spend. That may eventually spell economic trouble.”

In a Deseret News interview, Seery said that most U.S. households still have ample disposable income to take on a bit more credit debt. She pointed to data that reflects the current average household debt to disposable income ratio stands at around 14%, well below the 18% ratio that was in play on the cusp of 2008’s Great Recession.

But, Seery noted that continued reliance on credit, as reflected in the latest Fed report, could lead to negative outcomes for consumer budgets.

“Most households are currently in relatively decent financial shape,” Seery said. “It starts to become concerning when households begin biting off more than they can chew. If they continue to draw on credit going forward at the rate they have, we could be at a very different place.”

More spending on the horizon

Seery co-authored a Wells Fargo holiday spending report released last month that predicts the trend of strong consumer spending will carry into the 2022 holiday season and overall sales will be up over 2021. But, Seery noted that after adjusting for inflationary increases, that bump will be considerably smaller than the record-setting growth U.S. retailers have seen the previous two years.

“We expect to see a 6% annual gain in holiday spending,” Seery said. “But a lot of that will be driven by price increases. The holiday sales increases, in real gains, will be closer to 2%.”

Seery and her co-authors found that, looking back over the past 28 years, the two biggest annual increases in holiday sales have occurred in each of the past two years.

Adobe Digital Insights also dropped a holiday shopping forecast report in October, but it’s focused on online spending.

Adobe analysts predict growth for online retail sales over the holiday season will slow considerably as overall inflation curbs consumer spending capacity. They predict holiday online sales will move up 2.5% this year and hit nearly $210 billion, but noted earlier discounts and more constrained spending could also lead to a slight drop, around 2%, compared to 2021 online spending for the end-of-year holidays.