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Economic numbers show Americans are on a spending kick. How long can that keep up?


Numbers show that Americans bought a lot of cars and concert tickets last month. They also splurged on travel, shelling out for airline tickets and hotel rooms. All of that spending helped to keep the economy bubbling along despite some of the highest interest rates in more than two decades. So how long can we keep this up? We're going to talk through that for a few minutes with NPR's Scott Horsley.



SUMMERS: So Scott, there has been a whole lot of economic data out this week. You've been sifting through it. What is it telling us?

HORSLEY: It's telling us the consumer is king - or at least trying to live like one. This morning, we learned that personal spending got a big boost in September, and that spending was pretty widespread. As you mentioned, people bought a lot of cars last month, even though cars and car loans are pretty expensive these days. Economist Tim Quinlan of Wells Fargo says people spent a lot on services, like travel and eating out, as well.

TIM QUINLAN: It's still hard to get a restaurant reservation and, despite all the worries about the housing market, hard to find a contractor to show up to the house to do work. So the strength in the service sector has been a lot more resilient than people would have thought, even as recently as a few months ago.

HORSLEY: And those September numbers cap off a really strong quarter for the economy. GDP grew at an annual rate of just under 5% in the last three months. That's the best quarter of growth in nearly two years, and it was largely fueled by consumers who've defied expectations and just kept spending.

SUMMERS: OK, keeping spending, but where are these people getting the money, Scott?

HORSLEY: Yes, that's the rub. We do have a very strong job market. Unemployment's under 4%, so lots of people are working, and wages have been going up. But the rise in paychecks last month did not keep pace with the rise in spending. So Quinlan says, at some point, something's going to have to give.

QUINLAN: Obviously, you can eat into savings for a while. You can borrow from the credit card for a while, but this is not a sustainable framework for long-term spending growth.

HORSLEY: The personal savings rate soared early in the pandemic, but it has since dropped way down. People are now saving less than 4% of their disposable income. That's less than half the pre-pandemic savings rate, so there's not a lot of cushion there.

SUMMERS: I mean, Scott, thinking about this at a personal level, lately, when I go to the grocery store, it feels like I'm just spending a ton more money than I used to to buy groceries for my household, and it adds up really quick. How much of this extra spending that we're talking about is just higher prices?

HORSLEY: Higher prices are a part of the story. But, you know, spending rose faster than prices in September, so people are putting more into their shopping basket as well. Certainly, if inflation comes down, that helps. And it has come down a lot from its peak last summer, but prices are still going up faster than the Federal Reserve would like. Fed policymakers are set to meet this coming week. And they're expected to hold interest rates steady, but they'll probably leave the door open to another rate hike in the future if that's what it takes to get inflation all the way back down to 2%.

SUMMERS: There's been a lot of concern that the Fed's aggressive rate hikes would tip the economy into a recession, and it seems to be going the other way. So what happened?

HORSLEY: Yeah, this is in the Timex economy. It takes a licking and keeps on ticking. I know that doesn't mean anything...

SUMMERS: (Laughter).

HORSLEY: ...To people who just use their smartphone to tell time. Treasury Secretary Janet Yellen was interviewed on Bloomberg TV yesterday, and she gloated a little bit that this economy has defied all those gloomy forecasts. She acknowledged the economy's not likely to keep growing at the blistering pace it did last quarter, but she doesn't think it's going to go into a ditch, either.


JANET YELLEN: You don't really see any sign of recession here. You know, what we have looks like a soft landing with very good outcomes for the U.S. economy.

HORSLEY: And if we do get a soft landing, it's the strong consumer that's keeping the jets from sputtering out along the way.

SUMMERS: NPR's Scott Horsley. Thanks.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.