US Consumers Keep Buying While Inflation Keeps Falling

A few weeks ago, Wall Street was panicking. Now, the US looks to be in soft-landing territory with inflation falling below a crucial threshold as the country nears the end of its battle back from the pandemic’s economic aftermath. While the US economy is cooling by design, consumers are still spending and more upbeat, further cementing the unmatched status of America’s resilience following the 2020 recession. After close to two years of historically low unemployment and more recently rising wages, the Federal Reserve’s oft-criticized caution continues to bear fruit as the central bank is poised to start lowering interest rates. But the process is still a balancing act. With pandemic savings largely gone and wage growth cooling, many Americans are increasingly resorting to credit cards and other loans—raising questions about the sustainability of consumer spending, especially as more people are falling behind on payments.

Economic bellwether Walmart’s latest earnings report also showed a more discerning consumer. Americans are also pulling back on travel while deferring big home renovations. And the housing market—specifically rents—remains a thorn in the Fed’s side as it tries to bring inflation back to its 2% target. But by and large, the landscape is looking pretty good for Fed Chair Jerome Powell. Only two weeks after a modest rise in unemployment triggered a Wall Street mini-panic, new data this week suggested it (as many said from the start) was a significant overreaction, Jonathan Levin writes in Bloomberg Opinion. “The early stages of a recession are commonly described as environments in which weak consumer spending begets layoffs, which beget even weaker household expenditures and so forth,” Levin says. “Fortunately, the evidence suggests that neither consumption nor the labor market is currently weakening at a particularly alarming pace.”