Americans are still spending big, but experts agree the party is almost over. The question is when.
On Tuesday, the casino operator Caesars, which owns eight casino resorts in Las Vegas, said October’s earnings were the “strongest month in the history of Las Vegas” for the company.
While a recession might be on the horizon, Caesars isn’t seeing any signs of one just yet.
“I can’t point you to anything in our business in or out of Vegas that shows any slowdown in the consumer,” said CEO Tom Reeg.
And it’s not just on the Vegas strip where consumers are still shelling out.
In October, both American and Southwest Airlines reported record operating revenues for their respective companies in the third quarter. Following “record summer leisure travel demand,” consumers continued to hit the skies in September, Southwest CEO Bob Jordan said.
In the restaurant industry, McDonald’s and Chipotle both released earnings last month that beat expectations, saying they have seen minimal resistance from customers to the higher prices.
On Tuesday, Airbnb reported its highest quarterly revenue ever at nearly $3 billion, driven by more bookings and longer stays. And Cedar Fair, the parent company of the Cedar Point theme park in Ohio, also reported a record quarterly revenue figure this week.
On the whole, US consumer spending rose 0.6% in September, the Commerce Department said, higher than the 0.4% projected.
“Americans may say they are worried about inflation, but they are still out shopping, which keeps the economy growing for another quarter,” Christopher Rupkey, chief economist at FWDBONDS, told Reuters.
That growth, illustrated by last week’s GDP increase of 2.6%, is among the reasons the Federal Reserve raised interest rates again Wednesday. Its previous rate hikes have yet to cool an economy that still has high inflation and over 10 million job openings.
“If you raise rates and slow down the economy to fight inflation, the expectation is you have a slowdown in consumer spending,” Bank of America CEO Brian Moynihan said last week. “It hasn’t happened yet.”
Despite still-hot spending and jobs numbers, economists and CEOs agree that a slowdown is coming, with many predicting a recession in the next 12 months. As Americans spend down their savings and begin to rely more on credit card debt, companies are beginning to signal that consumers could soon reach a breaking point. Whether Americans buckle before year end, or persist through the holiday season, remains to be seen.
“This spending is driven by an unsustainable draw-down in the saving rate and over-reliance on credit,” Wells Fargo senior economist Tim Quinlan told USA Today, suggesting America’s hourglass is running out.
Corporations expect the party to end in the coming months
Despite reporting record revenue in the third quarter, Apple executives said they expect Mac sales to “decline substantially” in the fourth quarter compared to the year prior and are projecting an overall slowdown in sales growth.
Amazon doesn’t expect to be immune either. Its stock price fell 11% last Friday when it forecasted the slowest holiday sales growth in the company’s history, as consumers faced with inflation begin to cut back.
This slowdown could mean fewer presents this holiday season. A Deloitte survey of nearly 5,000 Americans found that Americans plan to buy 44% fewer gifts — an average of nine versus 16 last year.
But it’s also possible there could be one last spending hurrah.
A recent Gallup poll of over 1,000 US adults found that consumers expect to spend an average of $932 on gifts in the coming months, up from $837 in 2021 and near the $942 recorded in 2019, the highest in the survey’s history.
But even if Americans bite the bullet of higher inflation to put presents under the tree, experts expect a retreat to slower spending in the New Year.
“Spending should slow down significantly with the holiday hangover and as savings continue to dwindle,” RSM economist Tuan Nguyen told USA Today.