In the Consumer We Trust

Without strong holiday sales, the U.S. economy could be headed for a more drastic slowdown.

Robert Spendlove and Joseph Mayans Oct 24, 2019

The Story

All eyes will be on the health of the U.S. consumer this holiday season as the Federal Reserve considers interest rate cuts at its final two meetings of the year. Buoyed by 108 consecutive months of job creation and the lowest unemployment rate in 50 years, consumers have opened their wallets and counterweighted the slowdown in business investment and in the manufacturing sector for much of the year. However, with the U.S.-China trade war now in its 15th month, ripple effects are starting to be felt around a wider swath of the economy. The added uncertainty has weighed on the pace of hiring, and wage growth has fallen back from its post-recession highs – both of which could dampen the spirits of consumers. And while overall consumer confidence remains elevated, there are hints that it is starting to weaken as it slipped to the lowest level in four months in September.

Annual wage growth hit its post-recession peak of 3.4 percent in February 2019. Since then, wage growth has waned as overall job creation has fallen.

Graph of annual wage growth
Source: Bureau of Labor Statistics

Despite other economic indicators pointing towards a downturn, consumer confidence remains relatively strong.

graph of consumer confidence
Source: The Conference Board

Will the Shopping Spree Continue?

While Fed officials have already slashed interest rates twice in 2019, in an attempt to buffer the U.S. from a slowing global economy, they will likely do so again if it appears the consumer is starting to falter. And the Fed may have reason to worry. Consumer spending – which accounts for roughly two-thirds of the U.S. economy - has waned in recent months. In August, spending only expanded 0.1 percent from the month before, which is the weakest growth since February. If this trend continues and consumer spending is lackluster this holiday season, the U.S. could be headed for a more drastic slowdown. However, with the National Retail Federation projecting holiday sales to rise by 3.8 – 4.2 percent over 2018 levels, some are optimistic that current conditions will continue, and sales will be solid.

Consumer spending has expanded for much of 2019, though the rate of growth has slowed.

Graph of consumer spending
Source: U.S. Commerce Department

The National Retail Federation expects holiday sales to expand by 3.8 - 4.2 percent over sales in 2018.

Graph of holiday sales
Source: National Retail Federation

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