According to economic experts, America’s recent stimulus-fueled shopping spree may be coming to an end, signaling a potential consumer-led downturn on the horizon. Retail sales saw a 4% decline in the first quarter, a worrisome trend that economist David Rosenberg believes indicates the onset of a consumer recession. Factors such as inflation and a cooling job market are causing consumers to tighten their wallets, leading to decreased spending.
A recent McKinsey survey revealed that 55% of respondents felt “pessimistic” or had “mixed” feelings about the economy in the second quarter. Consumer sentiment has soured due to a higher cost of living and sluggish hiring activity, with lower- to middle-income households experiencing worsening financial situations compared to last year. The delinquency rate on credit card loans has risen to its highest level in 13 years according to Federal Reserve data.
Consumers are also making efforts to cut back on spending, with 76% making “trade-downs” in the first quarter by searching for cheaper prices or switching to more affordable brands. Stephanie Pomboy, a veteran forecaster, noted that consumers are spending every dollar they have and more just to cover basic necessities.
The potential impact of these spending cuts on GDP is significant, as the economy has already shown signs of softening after strong growth in 2023. The US economy grew 1.6% in the first quarter of this year, a decrease from the previous quarters. Projections from the New York Fed suggest a 52% chance of a recession by May of next year.
Chief economist Ian Shepherdson of Pantheon Macroeconomics believes that a further slowdown is likely in the third quarter, indicating that the consumer recession is a genuine and ongoing concern. As consumers continue to face financial challenges, the outlook for the US economy remains uncertain.
