Why Do Americans Love Stuff? An Insight on Consumer Spending

Picture this: It’s November, and the Christmas clock is ticking faster by the day. Your mom is in the kitchen with her hand on her forehead, pouring over the newest Toys R Us catalog that you and your siblings fought over for hours. During that time, the three of you took out different colored pens, circling the toys and games and gadgets you wanted under that tree the most.

Then, money meant nothing. You never knew how it was paid for — you just knew it would be there when you ran down the stairs Christmas morning and was yours to play with once the living room floor looked like a destroyed copy room.

The spending our parents did all those Christmases ago are collected in the data for US consumer spending, a metric that refers to “private expenditure on goods and services”.

Consumer spending makes up a whopping 70% of the US GDP (with the other elements being government spending, investments, and net trade), and thereby drives the economy forward during times of expansion. Let’s look at the current state of US consumer spending.

Figure 1: U.S. Consumer Spending, Q2 2022 — Q3 2023

For the past three years, American consumer spending has been on a steady, if not exponential, climb. Even with the reckoning of the COVID-19 pandemic beginning in early 2020, Americans were still shopping: Innovative delivery services like Amazon (goods) and Instacart (food) kept our dollars flowing, though at a slower rate.

Since recovery efforts began in late 2020 and early 2021, US consumer spending has been going full speed ahead, hitting an all-time high in Q2 2023 at $1.4T. But why?

For one, some Americans have maintained healthy nest eggs from pandemic-era relief, like stimulus and unemployment checks. For most, though, a heavy reliance on credit has allowed our spending to skyrocket, even without the security of a healthy savings account.

In the past year, credit balances have been somewhat of a rollercoaster ride, even with high interest rates. Regardless of their borrowed money being more expensive, Americans — especially those below the age of 35 — continue to open low-limit, non-asset bearing lines of credit.

Figure 2: U.S. Consumer Credit, Q3 2022 — Q2 2023

A lot of this spending has an emotional bearing. As reviewed in the August 14 Marketplace podcast episode just include the link instead of the footnote., many have adopted a “kick-the-can” approach towards their finances — spend now, pay later. The trauma and uncertainty the pandemic brought on rocked our country’s psyche, and for many, it makes no sense to save for a future that is wholly or partly uncertain.

In fact, Americans are investing more in experiences — like concerts, festivals, and conventions — than ever before. Taylor Swift’s “The Eras Tour” and Beyonce’s “Renaissance Tour” have both raked in billions of dollars domestically, contributing to a stimulated economy for the cities they visited.

For now, Americans will continue to spend as their hearts desire — it feels deserved.