Americans may be forced to finally pull back on their post-Covid spending spree

Advertisement

Some experts think the combination of high housing costs, rising credit card debt and shrinking savings could mean the end of post-Covid splurges, maybe even as soon as this year’s holiday shopping season, the media reported. “Headwinds are going to eventually force the consumer to buckle, and I think that we’re going to see consumers have to pull back on spending for a quarter or two,” CNN quoted Erik Lundh, a principal economist at The Conference Board, as saying.

The consumer’s willingness to keep paying high prices has kept the US economy relatively strong, but that attitude could soon be shifting. Buying and paying for a house costs Americans more now than at any point in almost four decades. The last time housing payments cost that much was in 1984, CNN reported. Balances on non-housing loans have more than doubled since 2003, totalling roughly $4.8 trillion, according to data from the New York Federal Reserve.

More than $500 billion of that debt accumulated just in the past two years – a bigger jump than any other two-year period since 2003, the earliest year available. Some of that debt comes from skyrocketing car prices, but credit card balances are growing the fastest of all – roughly 34 per cent from the fall of 2021. Student loan and car loan balances have grown by 10 per cent or less over that same period of time, although student loan debt could begin to climb now that payments have resumed.

Advertisement

As the pandemic waned, consumers unleashed a pent-up demand for experiences denied by Covid, Lundh said. And for the past two years, Americans have been spending all those savings, even as prices and interest rates have climbed higher and higher, CNN reported. During the pandemic, consumers accumulated $2.1 trillion in excess savings. As of June 2023, they’ve spent $1.9 trillion of it, the SF Fed concluded.

“The consumer is going to have to take a breather for a little bit,” Lundh said. And that would mean Americans may be forced to finally pull back on their post-Covid spending spree, CNN reported. “At a certain point, this debt becomes unsustainable, and there’s no more savings left,” Lundh said. “And that’s what we expect probably to happen to the US consumer, towards the end of this year and into early 2024.”