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Written by Cyndie Martini
on July 19, 2022

What does the latest data tell us about the strength of the consumer and their ability to continue spending? Q1 2022 GDP was -1.5%. Economists tell us that two negative quarters of GDP equals a recession. The Atlanta FED's GDPNow is saying we'll have 0.0% growth for Q2, barely dodging a recession.

There's no doubt the US economy is slowing. However, the consumer remains strong and is expected to continue spending. But with a looming recession, how is that possible?

There are a few reasons why the consumer is still showing strength. The savings rate peaked at 33.8% in April 2020. It has been falling since. As of April 2022, it stands at 4.4%. However, this does show the consumer still has savings. Translating those savings into dollars, Americans have $2.3 trillion in savings, as reported by Yahoo Finance.

Between March 2020 and January 2022, households accumulated $2.5 trillion in excess savings, according to Fortune. The flourishing jobs market, increasing wages, and excess credit (card) capacity are additional contributors to spending power.

As the economy continues to open, consumers will keep shifting their spending from goods to services. This is evident from earnings guidance warnings from big box retailers such as Walmart and Target. 

Month over month retail spending has been falling as well. It peaked in January 2022 at 2.7%. In May, it fell to -0.3%.

The consumer makes up 70% of US GDP. If the consumer slows down spending, it will certainly have a large impact on the economy. Additionally, inflation is hitting consumers hard in their checking accounts. However, wage increases can offset some of these cost increases. But there are areas such as gasoline that continue to rise rapidly. Given the shift from goods to services, high gasoline will be a headwind to services spending.

 

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