![ING: US consumers are running out of cash ING: US consumers are running out of cash](https://i0.wp.com/content.fortune.com/wp-content/uploads/2023/09/GettyImages-1251780505-e1693564294362.jpg?fit=%2C&ssl=1)
U.S. households paying living expenses with credit card loans may soon be out of options, an analyst warned, saying a spending adjustment is coming.
U.S. consumers have remained remarkably resilient in the face of rising interest rates and the cost of living — despite the Federal Reserve’s deliberate attempts to curb their spending to keep inflation in check.
Shoppers are warned their bank balances will be pushed to ‘pain point’ in order to get inflation gauge – up to 8.5% in July 2022– under control.
Experts say “YOLO shoppers” have squandered the last of their covid-19 cash before winter, but ING chief international economist James Knightley has warned shoppers may turn to loans to cover expenses.
Economists at the global bank highlighted that the July Personal Income and Expenditure report showed that personal spending remained strong – up 0.8% month-on-month and 0.6% in real terms.
Knightley describe Such spending is seen as a “really strong platform” for third-quarter GDP, with ING now forecasting annualized growth of between 3% and 3.5%.
The only problem, Knightley wrote, is that American consumers live a lifestyle that their bank accounts simply can’t justify.
“The key question is how sustainable is this?” Knightley wrote. “We don’t think so.”
The resilience of the labor market is partly underpinning the sustainability of consumer spending, analysts added.
In fact, the employment data for July showed that non-farm payrolls (jobs in the private sector and government agencies) 187,000 people added, slightly below the Dow Jones estimate of 200,000. However, this was still a small increase compared with the June figure, which was revised down to 185,000.
But the resilience of the labor market was offset by stagnant wage growth that lagged inflation.
although Inflation rate is 3.3% recent personal income 0.2% increase in Julywhile the savings rate dipped to 3.5%, shoppers were left with little to no paychecks.
credit card problem
Knightley noted that government financial support has dried up and consumers are looting their pandemic savings to keep spending.
Although the family saves $2.3 trillion The analyst said that during the various lockdowns, the economy is now doing the opposite: “We’re seeing savings flows reversed, and now we’re saving less each month, which is not sustainable in the long run.”
Consumers took out new loans in the form of credit cards, exacerbating the decline in savings.
The New York Fed revealed last month that credit card balances across the U.S. jumped $45 billion from the first quarter to the second, a 4.6% increase from a year earlier. $1.03 trillion.
ING also estimates that $1.3 trillion of the $2.3 trillion saved during the pandemic has already been spent — and combined with the amount of credit card debt consumers are now accumulating, the household financial surplus created during the pandemic has now dried up.
By the second quarter of 2024, households will have spent all their anti-epidemic funds, Knightley wrote, adding: “Credit card borrowing costs are the highest since records began in 1972, so there will be a lot of pain.”
Households who may have planned to keep adding to their debt may soon get a “no” answer.
“Banks are more reluctant to extend unsecured consumer credit, according to opinion surveys of senior Federal Reserve lending officials, with the apparent threat that many struggling households may soon find their credit cards maxed out, preventing them from getting more credit ,” Knightley wrote. “As student loan repayments restart, we expect consumer spending to slow sharply from the end of the fourth quarter and turn negative in early 2024.”
Svlook