WASHINGTON (AP) — With prices across the economy — from food, gas and rent to cars, airfares and hotel rooms — soaring at their fastest pace in decades, you might think Americans would tap the brakes on spending.
Not so far. Consumers as a whole are showing surprising resilience, not only sustaining their spending but increasing it even after adjusting for inflation. In April, the government said, retail sales outpaced inflation for a fourth straight month. It was a reassuring sign that consumers — the primary drivers of America’s economy — are still providing vital support and helping allay concerns that a recession might be near.
Yet at the same time, there are signs that some people, especially in lower-income households, are starting to cut back, by shifting to lower-priced or alternative items or by skipping some purchases altogether as inflation shrinks their disposable income...
...Consider that even while consumer sentiment as measured by the University of Michigan plunged nearly 30% over the past year, Americans’ spending outran inflation during that time. Economists at Michigan noted that there has been a “historic disconnect” between sentiment and actual consumer behavior.
Some economists warn that steady consumer spending won’t likely last in the face of the Fed’s aggressive credit tightening. And if consumer spending does stay strong, the Fed might eventually have to jack up rates even further to cool the economy and slow inflation. Earlier this month, in its quest to quell inflation, the Fed raised its benchmark rate by a half-percentage point and signaled additional large rate hikes to come. Some fear the economy could slide into recession next year.
Still, several trends are driving Americans’ spending, including rising pay, savings amassed during the pandemic and a rebound in credit card use. Those savings and continued wage gains, economists say, could fuel healthy spending throughout this year.
Consumers have been shifting much of their spending away from appliances, electronics and exercise equipment — the kinds of goods many splurged on early in the pandemic while hunkered down at home — to travel, entertainment and other services. The intensity of that shift has caught many retailers off guard and contributed to some negative earnings reports.
https://apnews.com/article/economy-inflation-prices-4e671c834fb40342d544362f2bdf5791
