2023 proved recession doomsayers wrong. Last year, the US economy grew 3.1%. Strong consumer spending, propped up by a strong labor market, helped drive growth during a year where economists initially expected a contraction.
As wage growth outpaced price increases, consumer confidence increased. Subsequently, so did spending: largely on healthcare, dining-out, and cars. 2023’s consumer-driven growth was further buttressed by government spending and international trade, as the chart below reflects.
While consumers seized the spotlight in 2023, it remains uncertain if their enthusiastic spending will extend into 2024. Consumers substituted saving for spending: the personal saving rate fell notably in 2023, below a decade-steady level of around 5%. Consumers have also been spending money they don’t have. Credit card spending, balance pay-off time, and delinquency rates all increased in 2023. Economists expect consumer spending to taper while also predicting a growth slowdown to 1% this year.
Source: Gabriel T. Rubin, The Wall Street Journal
Reade Ben is a policy analyst at the Manhattan Institute.
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