Consumer Spending Slows Down Despite Strong Economic Outlook

Consumer spending in the United States has slowed down in the recent months despite a tight labor market, a strong handle on short-term rates and steady economic activity around the world. Everyday consumers are puzzled by the fact that banks are becoming more cautious when it comes to lending or issuing new credit-card lines. According to the Commerce Department, household spending only rose by 0.2% in the early months of 2018. Compared to historical data, consumers were said to be saving more and spending less, which negatively impacted the retail industry who is heavily reliant on consumer spending. Sales in the retail industry have been spiraling downwards for the last three months in 2018, thus creating a sense of disbelief amongst economists hoping to see larger gains.

Keeping the ideas of a tight labor market, rising wages and the new tax cut plan in mind; the biggest question people are asking today is, why has consumer spending gone down despite a strong economic environment?

One prediction on the street focuses on distortions from the last hurricane season. Consumer spending was at its peak as consumers rushed to control the damage and pay for the costs to repair cars, houses and other destroyed appliances. Another justification regarding consumer spending was regarding the tightened lending standards by auto and credit card lenders. Credit standards on consumer loans has been tightening for the last four quarterly surveys produced by the Federal Reserve Bank of New York. This directly represents the aggregate rising debt per household as consumers have exceeded the $473 billion record in debt balances. With the risk of default, multiple credit card and auto lending companies have strengthened their policies on loans to protect them in the long-run.

Going forward, consumers with low credit scores will have a tough time securing loans from banks and other lending companies. The growing debt balance in the last few years will play a large impact in the retail industry and slow down overall consumer spending.