The Resilience of Consumer Spending in a Post-Pandemic Economy

The recovery of the economy following the shock of the pandemic has been largely propelled by a single force: the American consumer. With a surplus of savings and a robust labor market, consumers have been enthusiastic in their spending patterns, first splurging on durable goods like furniture and electronics, and subsequently indulging in services such as air travel and dining out.

However, the critical question looms: how long will this consumer spending spree continue? Despite fluctuations in global markets, many economists are advising against premature alarm—at least for the time being. In July, there was a marked slowdown in hiring, accompanied by a rise in the unemployment rate, which reached its highest level since October 2021. Nevertheless, consumer spending has demonstrated resilience. Wages are on the rise, although at a more gradual pace, and the incidence of job cuts remains relatively low.

“Overall, there isn’t evidence of a retrenchment in consumer spending,” stated Gregory Daco, the chief economist at the consulting firm EY-Parthenon. The vitality of consumer expenditure has significantly contributed to unexpectedly robust economic growth in the spring months.

This positive trend could potentially shift if the slowdown in the labor market escalates. Already, certain segments of consumers, particularly those with lower incomes, are grappling with the dual challenges of rising prices and elevated interest rates, both of which are straining their financial stability. There has been an uptick in credit card delinquencies, and household debt has increased substantially. Pandemic-era savings have also diminished; in June, the savings rate for Americans fell to just 3.4 percent of their after-tax income, compared to 4.8 percent a year prior.

In discussions with investors and among corporate leadership teams nationwide, executives are increasingly recognizing that consumers are no longer spending with the same abandon they once did. Many are preparing for a continued decline in spending patterns.

“We are seeing cautious consumers,” remarked Brian Olsavsky, Amazon’s chief financial officer, during a recent call with reporters. “They’re looking for deals.”