Spending by American consumers is at record levels, and they seem to be spending without… tomorrow. Amid high interest rates, depleted savings and rampant inflation, this development has baffled economists as they struggle to predict how far they will go.
On Black Friday, in-store sales were up 1.1 percent from last year—online alone, American shoppers ended up spending $9.8 billion.
Consumers spent another $12.4 billion on Cyber Monday, an impressive 9.6% increase over last year. This holiday spending spree follows the pattern of US consumer spending, which has fueled the US economy over the past year, accounting for nearly 70% of real GDP growth of 4.9% in the third quarter.
The YOLO effect
While some of this spending reflects the rising cost of essentials, Americans are also still buying big and looking for unique experiences. This YOLO (You Only Live Once) attitude to money bucks the spending trends of previous economic downturns – and some economists are scrambling to explain the behavior, especially as consumer sentiment about the economy remains overwhelmingly pessimistic.
Typically, after a major crisis or a downturn in the labor market, the economy generally shows a slight uptick in both saving and consumer spending. However, the San Francisco Reserve Bank (SFRB) reported in May that the post-pandemic increase in fiscal spending this year has soared beyond the increase of any other recession since the 1970s.
Much of this increase is due to an “unprecedented” increase in the accumulated savings of American households, which is due to the rapid fiscal response of the US federal government to the pandemic. The stimulus packages, which directly injected $5 trillion into the US economy, combined with other indirect policies, such as suspending evictions and student loan payments, saved about $2.3 billion in 2020 and 2021.
What is the new trend about?
Although they have reduced their savings this year, many consumers still have money in their savings – some for the first time – and are willing to spend it now, even if they don’t believe in a full economic recovery. This prolonged period of YOLO-style spending amid rising debt and shrinking savings has many economists perplexed.
Trust Economics reports that YOLO spending is led by the younger, upper and middle classes of the US population. Although these people are not necessarily wealthy, they earn enough money to cover their needs and are still able to spend on leisure travel and luxury goods. Many of them also tend to use Buy-Now-Pay-Later (BNPL) platforms, which have seen a lot of growth in the US, including during this year’s Black Friday.
Sense and Sensibility
Even if the pattern has no financial precedent, however, some experts argue that it makes intuitive sense.
When you don’t really know what the future holds—or even if there is a future for you—people focus on the present and the short term. This means that in the midst of changing attitudes around work and life, people are choosing to prioritize their happiness and entertainment, which in this case equates to overconsumption.
Even if many people are still working and earning a wage, they are not necessarily happy – wages are still not keeping pace with inflation, for example, and people are still suffering from the physical and psychological trauma of the Covid-19 pandemic .
While job satisfaction numbers look strong, measures of life happiness are in the red.
But everything has an end
As inexplicable as the phenomenon may seem, several economists agree that these YOLO spending patterns cannot continue forever and that the economic landscape is on the verge of change.
The October end of child care subsidies and the return of student loan payments. In addition, US credit card debt topped $1 trillion for the first time, while the cost of basic goods is unlikely to come down anytime soon, even if inflation slows. Moreover, these BNPL bills will also come. All these factors portend a crash landing in the frenzied YOLO rate of consumption.
It’s only a matter of time before some Americans are forced to cut back on their waste.
