American consumer spending remained strong last year — much to the surprise of many economists who had expected persistent inflation and high interest rates to eventually take a bite out of spending.
The big question for 2024 is whether this can continue. Consumer confidence has long shown that people are weary from rising costs. If spending patterns change, it could be bad news for the U.S. economy, which is in large part driven by consumer spending. And early signs suggest there might be some clouds over the horizon.
One cause for concern comes from household debt, including credit card debt, which is at historically high levels, according to the Federal Reserve Bank of New York. With more Americans carrying month-to-month debt, focus may shift from adding new buys to their balances to paying off previous purchases.
Against the high inflation backdrop, the U.S. labor market has remained relatively strong. The low unemployment rate and consistent job gains have cushioned the debt strain on consumers. But there are growing worries that something’s gotta give.
The Fed is widely expected to start slashing interest rates this year, after ratcheting them up to combat inflation, which could relieve some pressure from consumers. But before doing so, the central bank is looking for proof in economic data that inflation has come down enough. The next data point will arrive this week in the form of December consumer price inflation.
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