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- EY chief economist Gregory Daco thinks "consumers are becoming more conservative with their spending."
- That's partly because of elevated inflation, which also sped up recently.
- Coming up is another headwind: the restart of federal student-loan payments.
After boosting the US economy over the last couple years through a wave of spending on everything from restaurant visits to Taylor Swift tickets, the American consumer might be running out of steam.
"Consumers are becoming more conservative with their spending as they continue to face a trifecta of headwinds including elevated inflation, higher interest rates and slowing labor market and income gains," Gregory Daco, EY chief economist, said in recent commentary.
Inflation as measured by the Consumer Price Index has been speeding up. CPI increased 3.7% year over year in August, faster than July's 3.2% rate, according to the latest report from the Bureau of Labor Statistics. While inflation did speed up, it's still well below the 6.4% year-over-year rate in January or the 9.1% peak in June 2022.
Data from the Bureau of Labor Statistics illustrates the slowing labor market Daco pointed out. The US added 187,000 jobs in August, per the most recent jobs report from BLS. That growth is smaller than the 352,000 jobs added in August 2022 or the monthly growth seen for the first few months of 2023. While wage growth looks better than before the pandemic, year-over-year percent changes of average hourly earnings are not as large as they were throughout 2022.
But those headwinds Daco noted are not the only ones consumers are up against. For instance, some people will have federal student-loan payments back in their monthly budgets as federal payments are kicking off again in October — although people could have made progress toward paying it down during the pause, or as interest started accruing again this month. The upcoming restart, plus "the near depletion of excess savings, and tight credit conditions will further weigh on consumers' ability to spend going into next year," Daco said.
The different economic threats means consumer spending growth may not be so hot next year, as consumers are already reducing their spending.
"We anticipate consumer spending will advance 2.5% in 2023 and register muted growth of 1.3% in 2024," Daco added.
Other economists have pointed out how the upcoming student-loan payment restart will have an impact on the economy. Torsten Sløk, Apollo chief economist, noted "households running out of excess savings" and "student loan payments restarting" as just two of the "downside risks to the US economic outlook" in a presentation during the Fall 2023 Stern Economic Outlook Forum from NYU Stern.
"Federal student loan payments will resume next month which will further squeeze consumers who are already dealing with the consequences of higher gasoline prices and higher interest payments on credit card debt and variable-rate loans," David Kelly, chief global strategist of J.P. Morgan Asset Management, also wrote in a recent note.
While a report from AAA stated that the "national average for a gallon of gas hit what may be 2023's peak price of $3.88," the report also noted the price also slid a little bit afterwards. The average price for regular gas stood at about $3.85 as of Monday.
A recent survey also highlights how consumers are not willing to spend as much recently — and in the near future. A CNBC-Morning Consult survey of US adults found that 92% have cut down on their spending over the past six months. Almost two-thirds, 63%, were cutting on clothing and apparel during this period and almost two-thirds, 62%, said restaurants and bars.
Have you changed your spending habits or are you spending less on certain items given the restart of student-loan payments, fewer savings, and other factors? Reach out to this reporter to share, at mhoff@insider.com.