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How recession worries might be changing consumer spending habits

Streak of remarkably robust U.S. consumer spending appears to be finally waning

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Shoppers walk around City Creek Center in Salt Lake City, Utah.

Mallgoers walk around City Creek Center in Salt Lake City on Saturday, Dec. 17, 2022. A run of robust U.S. consumer spending appears to be finally waning, according to data reports.

Ben B. Braun, Deseret News

U.S. consumers have flummoxed economists for most of the past year with their decidedly split personalities when it comes to robust spending habits measured alongside their increasing pessimism when it comes to the economy.

While spending remained high throughout 2022, consumer attitudes as measured in the long-running University of Michigan Index of Consumer Sentiment saw an 18-point decline in 2022 over the previous year and is now down significantly from pre-pandemic levels.

“We were surprised, too, that consumer confidence is not highly correlated, at least for the past few years,” said Jonathan Silver, CEO and founder of consumer purchase data platform Affinity Solutions, at a National Retail Federation conference in New York earlier this month, per Axios.

That resilient spending pattern has been bolstered by pandemic stimulus funding that helped boost U.S. household savings to a record $2.3 trillion in 2021, according to an October 2022 report from the Federal Reserve. And while a good chunk of that savings, around two-thirds or so, is still in the bank for most households, some cracks are starting to show in how much, and where, consumers are spending their hard-earned dollars as recession worries continue to linger.

Here are a few data points reflecting what’s happening right now when it comes to consumer habits:

  • Upticks in consumer debt accumulation and reductions in current personal savings rates (now hovering around 2.3%, the lowest in decades) may also be exacerbating those concerns.
  • A shopper insights survey from Acosta found 61% of consumers claim they are eating out less, and 52% are spending less on entertainment. 
  • U.S. retail sales fell in December, marking the third drop in four months. Back in October, Wells Fargo economists predicted the 2022 holiday shopping season could very well be a coda, marking the end to the streak of teflon-coated consumer spending rates.
  • “Now more than halfway through January, attention shifts to what this means for consumption in 2023,” Wells Fargo economists wrote in a report released last week. “Essentially, after pandemic-era stimulus and excess cash have boosted goods consumption the past few years, we expect it’s becoming more challenging for consumers to maintain such a robust pace of spending.”
  • A new report from Morning Consult said that December showed slowing inflation for the sixth straight month, while consumer spending was down 4.3% in December.
  • “Heightened budgetary pressures brought on by persistently high inflation are forcing trade-offs for consumers, leading to reallocation across categories,” the report said.
  • It noted that “consumers across all income groups reported gradually weakening financial conditions.”