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According to Eng Economics, consumer spending is rising and third-quarter GDP growth is on track to increase to 3.5%.
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But consumer spending habits don’t seem sustainable, and corrections need to be made.
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“The problem is that savings are stagnant and the banks are tightening lending standards significantly.”
US user It’s been going strong so far this year. Spending is still rising and on track to push third-quarter GDP growth to 3.5%, according to a Thursday note from Eng Economics.
But spending patterns are unsustainable, and the decline in consumer spending is coming as early as 2024, the note said. It’s because. Credit card debts are piling up. And abundant savings from the pandemic are being depleted.
“The problem is that savings are stagnant and the banks are tightening lending standards significantly. Credit card borrowing costs are at their highest since records began in 1972, so there’s going to be a lot of pain there,” said James Knightley, chief global economist at ING.
And while a A strong labor market provides a solid foundation As consumers continue to spend, wage growth is tracking below inflation, and savings trends are slowing.
“We’ve seen savings flows in reverse and now we’re running them every month, which is unsustainable in the long term,” Knightley said.
At current spending rates, he estimates that the surplus savings from the pandemic will be completely exhausted by the second quarter of 2024, and will be lost even faster for low- and middle-income consumers.
Knightley warned that a slowdown in growth could weigh on consumers’ spending power, leading to a complete exhaustion of surplus savings, a resumption of student loan payments next October and a higher credit card limit that could limit further borrowing.
Based on a survey of the Federal Reserve’s top lending officer, while banks are more reluctant to offer unsecured consumer loans, the obvious concern is that many distressed households are soon running out of credit cards and unable to get more credit. ” he said.
Total credit card debt held by American consumers hit a record high of more than $1 trillion earlier this year.
But there is one area that consumers can use to further their spending habits, and that’s home equity. It currently stands at a record $28.7 trillion.
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