Is consumer consumption shrinking? Maybe.
- Consumer spending has been strong in the past year as Americans have recovered from the pandemic.
- But now the fear is that spending will fall, hindering our economic progress.
In 2020, when job losses were rampant and millions of Americans suddenly had no choice but to dive into their savings to deal with income loss, many people cut back on unnecessary expenses. However, things changed in 2021.
During the year, the economy became stronger and jobs became more widespread. COVID-19 vaccines also enabled more people to return to work safely, and the return of personal schooling gave working parents a much-needed respite.
Since mid-2021, consumer spending has generally been strong, and this has actually led to an extreme price increase. When the demand for raw materials exceeds the available supply, prices have the potential to rise. And that’s what we’ve been struggling with over the last many months, as supply chains have not been able to keep up with consumer consumption patterns.
But while an increase in spending is good for the broad economy, a payments app is worried that that pattern will reverse in the short term. And if that were to happen, we could see unemployment rates rise markedly.
Is consumer consumption on the decline?
In early February, PayPal executives issued a warning during the company’s earnings call that consumer spending was declining, and possibly in an extreme way. Chief Financial Officer John Rainey blamed it on a combination of the omicron rise and inflation.
While wages rose across the board in 2021, inflation rose at such a rapid pace that workers on average ended with a pay cut. And the fear is that lower-income households in particular will have to cut spending to compensate for higher living costs. It can cause a ripple effect where companies lose revenue and let staff go, leading to an increase in unemployment figures.
Are you expecting layoffs?
Right now, the job market is strong and many companies are actually quite desperate to hire. But if you work for a company that has hardly hung on since the start of the pandemic, it may be a good idea to strengthen your finances in case things get worse – and dust off your resume if you have to start. to look for work.
That said, many jobs will not be affected by a decline in consumer spending. And even though consumers are starting to cut back on essential things like e.g. food, it does not mean that your grocery job is automatically compromised.
But it would still not hurt to pump some extra money into your savings account in the coming weeks if possible. That way, you have a pillow in case your relationship gets worse.
Will a drop in spending give rise to another round of stimulus?
A major reason legislators approved several rounds of stimulus checks during the pandemic was to boost the economy and help restore it. If the cost drops to a remarkable extreme, one fourth stimulus check could be a possibility. But we need to see a rather drastic drop in spending in order for another stimulus check to be justified – and that’s not something we should hope for.
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