The US consumer has been the driving force behind the economic recovery after the coronavirus lockdowns and the reason for the resilience in the US economy during these last two years of surging interest rates and inflation. Employment remains at cycle highs, which continues to keep the US consumer in good shape, as yesterday’s GDP report for Q4 showed.

Consumption Remains Strong According to Q4 GDP

According to the GDP figures released yesterday, personal consumption year-on-year (YoY) increased by 2.8% in the last quarter of 2023, which is lower than the previous 3.1% we saw during Q3, but is still at a solid rate, with consumption in services increasing to 2.4% from 2.2% in the previous quarter.

The small in consumption growth was caused by a slowing in the rate of goods spending. Although expenditures for durable goods have slowed, it is impressive that we’re seeing a 6% growth in 2023, considering an extremely tight monetary policy. The income from high interest and dividends has helped overall income grow above expectations, despite decreased labor income. With lower inflation, it means that real earnings were higher.

Savings Slowing but Strong

In the last quarter of 2023 according to the GDP report, the saving rate of the US consumer slowed from 7% which was the average before 2020, to 4.0%. However, this rate of savings is more sustainable. There were some indications that the consumer is feeling less optimistic, as default rates for various consumer loan products have shown a tendency to go up, together with credit card balances extended, while excess savings have been on the decline, which is an indicati0n that consumer demand will likely slow in the coming months.

But that was what everyone was saying after the pandemic lockdown, although the US consumer didn’t run out of money. The December retail sales report for last month was quite positive, showing that sales have increased in seven of the previous eight months, but the US consumer might be a bit exhausted right now. However, everyone also knows to never underestimate the US consumer.