The Blubber

Americans spent money at the fastest rate in nearly two years last quarter, per Bloomberg.

A recent stream of data from the U.S. government has illuminated a clear trend: Consumer spending is surging and propelling strong economic growth. This resilience has confounded economists, Federal Reserve officials, and even the negative sentiments expressed by Americans in opinion polls.

The government announced on Friday that consumer spending increased by a robust 0.4% in September, even after adjusting for inflation and in the face of rising borrowing costs. Economists caution that such robust spending may not be sustainable in the months to come. Many households are drawing from dwindling savings, and others are increasingly relying on credit cards. The additional savings accumulated by millions of households during the pandemic, stemming from stimulus aid and reduced opportunities for travel, dining out, and entertainment, are nearly exhausted, according to economists.

However, the fact remains that no one knows what lies ahead, given the unique nature of the post-pandemic economy. Most economists have been predicting the "death of the consumer" and an ensuing recession for at least a year. So far, there is no sign of a recession, and consumers, as a whole, appear to be financially robust. While spending might moderate in the coming months, it is far from certain that it will collapse.

The government reported on Thursday that the economy expanded at a 4.9% annual rate in the July-September quarter, the fastest pace since 2021, driven by increased consumer spending. People spent on items like used cars, restaurant meals, air travel, and hotel accommodations. Much of this spending, even when accounting for higher prices, was on discretionary items, indicating that many people are confident in their financial stability and job security.

The sustainability of this spending has garnered the attention of Federal Reserve officials, who have indicated that they will leave their key interest rate unchanged during their upcoming meeting. However, they have also made it clear that they are closely monitoring economic data for any signs of inflation rekindling, which might necessitate further interest rate hikes.

"I have consistently been surprised by the resilience of consumer spending," said Christopher Waller, an influential member of the Fed's board, in a recent speech.

In the meantime, businesses, especially those in the vast service sector, are benefiting from what still appears to be pent-up demand, likely driven by higher-income earners who were restricted by the pandemic. Last week, Royal Caribbean Group reported strong quarterly earnings. Travelers flocked to their cruise ships and spent more, even as the company raised prices.

Jason Liberty, the CEO of Royal Caribbean Group, stated, "The acceleration of consumer spending on experiences has propelled us towards another outstanding quarter. Looking ahead, we see accelerating demand."