Washington Post: “Americans are still spending money so strongly it’s steering the economy through growing inflation, but rising prices are starting to take a toll on savings accounts and summer vacation plans.”
“While gas prices have surged since the Iran war began, raising costs for groceries and transportation, tax refunds and stock market gains have been helping buffer the pain for some Americans who are still spending. Although many Americans are reducing how much money they are saving, data shows.”
How long can Americans spend?
Consumer spending, including and especially non‑necessity (discretionary) items, is a major driver of economic activity.
Consumer spending constitutes about 70% of U.S. GDP, so when households cut back, business revenues fall, and firms react by reducing hours, hiring, and investment. Lower business income can lead to layoffs, which further reduces household income and spending, reinforcing a negative feedback loop.
That is essentially what policymakers try to avoid during downturns, because weak demand can keep unemployment elevated and discourage new business formation.
