Cameron Mitchell, owner of dozens of restaurants, is seeing a shift in consumer behavior. Diners are opting for less expensive outlets and avoiding price increases, which could be a sign of a recession. Steve Hill, CEO of the Las Vegas Convention and Visitors Authority, believes people are now more interested in experiences than buying items, and Wells Fargo economists noted that households have about 10 months of spending power.
Meanwhile, the personal consumption expenditures data released on Friday showed that spending rose 1.1% in January after adjusting for inflation. Spending on goods and services, such as meals and movies, rose 1.8%. Walmart, the nation's largest retailer, is only projecting modest sales growth this year, as customers focus on basic necessities.
However, this additional spending could put more upward pressure on inflation at a time when the Federal Reserve is raising interest rates to keep prices in check. A drop in consumer spending would help to cool inflation, but it could also raise concerns about a recession. Alternatively, if spending continues to grow, the Fed may be forced to raise interest rates even more aggressively.
Silver, CEO of Affinity Solutions, is optimistic that the spending rate will remain steady. This is likely due to the extra savings people accumulated during the early months of the pandemic, when opportunities to spend were limited and the government was providing relief payments. Although bank balances are decreasing, Americans still have a lot of additional cash.
0. “Despite high inflation, Americans are spending like crazy – and it's kind of puzzling” KNBA, 25 Feb. 2023, https://www.knba.org/npr-news/2023-02-25/despite-high-inflation-americans-are-spending-like-crazy-and-its-kind-of-puzzling
1. “Inflation and recession jitters haven't quelled Americans' spending” Axios, 27 Feb. 2023, https://www.axios.com/2023/02/27/americans-spending-isnt-slowing-down-pce