Americans have started changing their spending habits as an Obama-era economist warns a recession is inevitable.
Data shows that many have cut back on large-scale purchases, as evidenced by the 2.3 percent slump in flight bookings and the 4 percent drop in car sales.
Citizens have cited soaring costs, likely fueled by the country’s skyrocketing inflation rate, as reasoning for scaling back on vacations, dining out, and routine services like haircuts, manicures and house cleaning.
Economist Larry Summers, who served as the U.S. Secretary of the Treasury under Barack Obama, has also warned that ‘by the end of next year, we would be seeing a recession in the American economy.’
He argues President Joe Biden‘s administration needs to take action to ‘reduce the inflation’ and ‘provide some relief’ to the American consumer.
Americans have started changing their spending habits as an Obama-era economist warns a recession is inevitable. Data shows that many have cut back on large-scale purchases, as evidenced by the 2.3 percent slump in flight bookings
As ticket prices for domestic flights have nearly doubled this summer, airlines are reporting a decline in summer bookings.
The travel industry was hard-hit with a travel surge in late spring after COVID-related restrictions impacting airlines were fully lifted.
Domestic flight bookings drove $8.3 billion in May, a 6.2 percent increase from the month prior, but are now down by 2.3 percent compared to bookings made the same month in 2021, Adobe reported.
Americans are still spending 11 per cent more on flights overall than at the same time last year, an indication of just how much fares have climbed since.
Analysts allege the decline is likely a direct impact of elevated ticket prices, which DailyMail.com revealed earlier this month were more than double average cost of fares.
‘We are beginning to see a more notable shift from goods to services, with consumers spending over half a billion dollars more on domestic flights in May,’ Vivek Pandya, lead analyst at Adobe Digital Insights, said.
‘While some consumers have been able to stomach the higher fares, especially for those who delayed travel plans during the pandemic, the dip in bookings shows that some are rethinking their appetite for getting on a plane.’
Despite the recent decline in flight bookings, reservations are still up 4.4 percent compared to pre-pandemic rates of May 2019. Overall airfare spend is up by 11 percent.
Retail sales slowed for the first time in 2022 last month. Most notably was the 4 percent drop in car sales
Although consumer spending, which makes up more than two-thirds of the U.S. economy, held strong during April but analysts predict the spend streak is coming to an end.
Retail sales slowed for the first time in 2022 last month. Most notably was the 4 percent drop in car sales.
Credit card spend data analyzed by Barclays revealed both high and low-income Americans have begun pulling back on routine spending, particularly with services.
‘All through 2022, the narrative has been that as COVID faded, households would ramp up spending on services,’ Barclays analysts told The Boston Globe. ‘And indeed, that narrative has been true for much of this year. But . . . services spending seems to be slowing considerably.’
Spending on travel and restaurants, which had grown more than 30 percent from 2021, has now slowed to half that pace, the analysts explained.
Businesses around the country have also reported a decline in customer spending. Most consumers are cutting back on services, like haircuts or house cleaning, however overall retail spending has also decreased
Businesses around the country have also reported a decline in customer spending.
A salon in Virginia said customers who used to come in every four weeks are now going up to 12 weeks between appointments.
Other customers are opting for less pricey services, like partial hair treatments or highlights instead of all-over color.
The hair salon said overall sales have decreased by about 20 percent from last year and tips have fallen from 20 to 10 percent.
A house cleaning service in Ohio reported similar trends. Co-owner Keith Troyer told the newspaper that most customers have delayed or cancelled appointments.
He also noted that some of his regulars have tried to negotiate lower rates.
‘It hasn’t been a massive drop off, but enough that it’s been noticeable,’ Troyer said. ‘Quite a few clients have called saying, ‘Hey, my wife got laid off. We need to cancel,’ or ‘Can I switch from biweekly to monthly?’ Prior to this month, that’s something that hardly happened.’
Earlier this month, DailyMail.com revealed that consumers are paying more than double average ticket prices for domestic flights. The above data reflects prices for the week of June 6
Meantime, economist Larry Summers has warned against of a looming recession.
‘Look, nothing is certain and all economic forecasts have uncertainty. My best guess is that a recession is ahead,’ he told Meet the Press on Sunday.
‘I base that on the fact that we haven’t had a situation like the present with inflation above 4 percent and unemployment beyond 4 percent without a recession following within a year or two.
‘And so I think the likelihood is that in order to do what’s necessary to stop inflation the Fed is going to raise interest rates enough that the economy will slip into recession.’
The former U.S Treasury Secretary said there are not ‘historical precedents for inflation at the rate we now have it,’ but argued all ‘precedents point towards a recession.’
‘If you look at a whole range of indicators, if you look at what’s happened in markets, if you look at the relative levels of interest rates of different durations, if you look at surveys of consumer expectations, and if you look at the simple fact that what drives inflation is supply and demand, supply doesn’t change that fast. And so mostly what you need to do to reduce inflation is reduce demand. And that is a very hard process to control. And so it usually leads to a recession,’ he explained.
‘All of that tells me that, while I wouldn’t presume to be able to judge the timing, the dominant probability would be that by the end of next year we would be seeing a recession in the American economy.’
Economist Larry Summers, who served as the U.S. Secretary of the Treasury under Barack Obama, has also warned that ‘by the end of next year, we would be seeing a recession in the American economy’
He argued that while he isn’t sure the government can ‘save the situation and prevent a recession,’ it is imperative for officials to pass some sort of legislation to ‘take pressure off the Fed.’
‘If at long last we can have some kind of bipartisan budget bill with three elements: with reduction of pharmaceutical prices which will help health care and will also reduce the inflation rate. That’s within our reach if we just use the government’s large purchasing power through Medicare, number one,’ he stated.
‘Number two, put in place the partial repeal, not the full repeal, but the partial repeal of the Trump tax cuts, which would take some demand out of the economy, increase confidence and reduce pressure on the Fed.
‘And number three, an all-in more energy supply approach that emphasizes freeing up fossil fuels in various ways in the short run and making, with government support, the ultimate pivot to renewables. All of that would take pressure off the Fed, would bring down the inflation rate, would operate to restore confidence, and would, I think, be a very positive contribution.’
Consumer spending hesitation follows months of inflation at 40-year highs. Overall prices have risen 8.6 percent in the past year, driving up the costs of essentials such as food and gas, which reached a record of $5 per gallon
Consumer spending hesitation follows months of inflation at 40-year highs. Overall prices have risen 8.6 percent in the past year, driving up the costs of essentials such as food and gas, which reached a record of $5 per gallon.
Federal Chair Jerome Powell has warned the American economy will see even more damage before inflation comes down from its 41-year-high.
The Federal Reserve on Wednesday raised interest rates by 0.75 per cent – their biggest increase since 1994 – in an attempt to rein in inflation. Powell had warned last month that more hikes are likely in the near future.
The measure by the central bank to raise interest rates by .75 will increase its benchmark short-term rate, which affects many consumer and business loans, to between 1.5 percent and 1.75 percent. The result will drive up loan rates for homes, cars, credit cards and other items – making it much more expensive to borrow money.
‘Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data,’ he said.
‘We think that the public generally sees us as as very likely to be successful in getting inflation down to 2 percent. and that’s critical,’ he noted. ‘It will take some time to get inflation back down but we will do that.’
The Federal Reserve on Wednesday raised interest rates by 0.75 per cent – their biggest increase since 1994 – in an attempt to rein in inflation
The measure by the central bank to raise interest rates by .75 will increase its benchmark short-term rate, which affects many consumer and business loans, to between 1.5 percent and 1.75 percent. The result will drive up loan rates for homes, cars, credit cards and other items – making it much more expensive to borrow money
President Biden meanwhile has disregarded criticisms that his big spending is to blame for high costs.
‘I don’t want to hear any more of these lies about reckless spending,’ he said. ‘We’re changing people’s lives,’ he said before the Federation of Labor and Congress of Industrial Organization convention in Philadelphia.
Biden also told The Associated Press that he believed he had the votes to pass prescription drug cost reform and provide tax incentives for winterizing homes to drive down energy costs.
‘I believe I have the votes to do a number of things,’ Biden said. ‘One, prescription drugs. Reduce utility bills by providing for — I think we’ll be able to get the ability to have a tax incentive for winterization.’
Biden has already tapped the Strategic Petroleum Reserves, which had a negligible effect on gas prices. Last week, he wrote a later to the CEOS of the nation’s major fuel companies threatening to use his ’emergency power’ if they do not take action to lower prices.