[New York Diary] Are Americans Spending Money Like There's No Tomorrow?

Stories from Everyday Life in America, Reported from New York

"Americans are still spending money as if there is no tomorrow."

This was the headline of an article published last week by the daily Wall Street Journal (WSJ). The Federal Reserve's (Fed) high-intensity tightening, which raised the benchmark interest rate by more than 5 percentage points, high inflation, depleting excess savings, and the gradually confirmed cooling of the labor market... At this point, economists generally diagnose that it is time for consumers to reduce their spending. However, consumer spending, which accounts for two-thirds of the United States' gross domestic product (GDP), remains robust according to statistics. Household spending in August increased by 5.8% year-on-year, far outpacing inflation. What on earth is going on?

[Image source=AP Yonhap News]

When the Fed's high-intensity tightening began last year, the market was flooded with forecasts that the U.S. economy could fall into a recession by mid-year. But what actually materialized was a boom in the so-called "experience economy." Instead of buying homes or saving for emergencies, Americans rapidly increased spending on experiences for themselves, such as concerts, travel, and gourmet activities. Regarding this, WSJ diagnosed that people who felt the instability of long-term plans for health, work, and daily life during the pandemic are spending on things they "might not be able to do later" or "would regret not doing."

Another new term confirming this consumption trend is "Taylornomics" (Taylor + economics). When American pop star Taylor Swift went on a nationwide tour in the first half of this year, the influx of tourists to each concert location boosted nearby hotels, restaurants, and other businesses, creating an economic revitalization effect. The economic impact triggered by Taylor was even included in the Fed's Beige Book, a report on economic conditions, and the Philadelphia Federal Reserve Bank's report. ING Netherlands, in a report released earlier this month, mentioned Taylornomics and the Barbie movie craze, evaluating that "entertainment revitalized the U.S. economy this summer."

But can this consumption continue in the "consumer paradise" of the United States? Many people shake their heads at this. First, the experience economy, which has recently supported the U.S. economy through travel and concerts, tends to be driven by one-off factors. In addition, concerns increase as pandemic-related excess savings are depleted and the burden of debt such as credit card loans grows. Americans' credit card debt has already surpassed $1 trillion, reaching an all-time high. The delinquency rate has also soared to its highest level in over a decade. The New York Fed analyzed that among five past cases of rapid increases in credit card delinquencies, three led to recessions.

Moody's Investors Service recently warned in a report that "the quality of consumer debt is deteriorating." S&P Global noted that "consumption is quite resilient thanks to a strong labor market," but also pointed out that "cracks are appearing among young people and low-income households." Moreover, student loan repayments are resuming in the U.S. starting this month.

The combination of still active consumption amid the depletion of excess savings and record-high credit card debt is quite significant. Forbes introduced a report on consumer spending released by the National Retail Federation last August and added the prophecy of the second witch from Macbeth as a warning: "Something wicked this way comes." The ending of Macbeth was not good.

This content was produced with the assistance of AI translation services.