Despite facing ever-rising inflation and persistent high prices, American consumers have not shown a significant trend of cutting back on spending. The frequency of traveling and shopping has not decreased, and the number of travelers during Memorial Day weekend is even expected to break historical records.

A survey indicates that up to 43.8 million Americans are expected to travel on the upcoming holiday weekend. The Transportation Security Administration notes that on May 24th alone, about 3 million people are anticipated to pass through airport security checkpoints, reflecting one of the busiest travel seasons since the early 21st century. Airlines in the United States are also optimistic about the number of passengers this summer, with industry forecasts predicting around 271 million people will choose to fly during the three summer months, surpassing last year's 255 million.

Even though the officials of the Federal Reserve System remain cautious about the persistent inflation, and recent inflation data have not been as optimistic as expected, the policy of raising interest rates seems set to continue. The senior executives of Goldman Sachs indicated that considering the current severe inflation situation, it’s unlikely that the Fed will lower interest rates this year. Meanwhile, Goldman Sachs' clients and CEOs likewise expect that inflation and interest rates may remain at relatively high levels.

Economists express concern over the momentum of US consumer spending, as the fiscal stimulus and subsidies provided by the government during the pandemic have led to a significant increase in household savings. This financial state, known as “excess savings,” means that the amount saved by households is well beyond normal levels. According to research, the total excess savings during the pandemic from March 2020 to August 2021 amounted to $2.1 trillion.

While the Federal Reserve has implemented a series of rate hikes to combat inflation, these excess savings have played a positive role in supporting household finances and promoting economic activity, effectively offsetting the anticipated impacts of a recession. Consumers' net worth grew in 2023, thanks largely to the recovery of the US stock market and real estate sector.

Since the beginning of 2024, consumers have been utilizing their stored excess savings, with an average monthly consumption of about $44 billion. In March 2024, it is noteworthy that excess savings fell to $1.0 trillion, nearly halving compared to the peak of $2.1 trillion in August 2021, a 46% decrease. These savings have provided support for consumers going through the most severe inflation and the Federal Reserve's rate-hike cycle since the 1980s.

However, recent signs indicate that the momentum of consumer spending is gradually weakening. After the economy grew 3.4% in the last quarter of the previous year, growth in the first quarter of this year was just 1.6%, the lowest point in nearly two years. Particularly concerning, the growth rate of consumer spending has also dropped from 3.3% to 2.5%. Consumer spending is a key driver of US economic growth and has been very strong over the past two years.

However, excess savings are now almost depleted. With the savings rate continuously declining, Hamza Abdelrahman, an economist at the Federal Reserve Bank of San Francisco, points out that many Americans' debt now exceeds their savings, which is particularly evident among lower-income groups. By March 2024, many American households have almost exhausted their savings from the pandemic period.

Meanwhile, the balance of debt for Americans continues to accumulate. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, recently noted that although consumer debt levels have not reached "particularly high" levels, the Federal Reserve is concerned about the delinquency rates of consumers for car loans, credit card bills, rent, and other payments—that is, the late or overdue payment situation. "If the delinquency rate of consumer loans begins to rise, it usually heralds that the economic situation might further deteriorate," added Goolsbee.

As for other aspects of the economy, the growth of the manufacturing and services sectors in the U.S. significantly slowed down in April, non-farm employment figures were below expectations, the unemployment rate rose slightly, wage growth also fell back, and the Consumer Price Index (CPI) declined. After the disappearance of fiscal stimulus, the negative impact of past rapid interest rate increases on the economy may continue in the future, and it is expected that the overall performance of the U.S. economy will be downward in the next quarter, with manufacturing likely outperforming services.

On May 23, data released by S&P Global showed that the U.S. Markit Purchasing Managers' Index (PMI) for May was better than expected, with the manufacturing PMI reaching a new two-month high, breaking through the important 50 threshold; the service sector PMI reached a 12-month high, and the composite PMI even hit its highest point in 25 months. In terms of closely watched inflation-related data, the speed of rising input costs in factories was fast-reaching its highest point since November 2022, with payment prices and charging prices in the service industry also rising. The composite PMI data also showed that the index measuring input costs rose to its second-highest point since September last year, and the charging prices index also increased.

Given the uncertainty of future inflation and interest rate trends, businesses continue to take a cautious stance on the economic outlook, and concerns about geopolitical instability and the U.S. presidential election have not been alleviated. Currently, the main driving force of inflation comes from the manufacturing sector rather than the service sector, indicating that both sectors' costs and sales prices have risen from pre-pandemic standards, suggesting that the Federal Reserve still faces unpredictable challenges in the fight against inflation. Following the monetary policy meeting on May 1, the Fed decided to keep the benchmark interest rate at a 20-year high, stating in its declaration that there had been no signs of inflation decline in recent months, indicating that it would consider lowering interest rates only when it is more confident about bringing inflation down to the 2% target.

According to the minutes of the Federal Reserve System meeting published on May 22, Eastern Time, authority officials said when assessing risks and uncertainties in the economic outlook, it was still unclear how long the current high inflation condition would persist, and recent data did not enhance their confidence in reaching the 2% inflation target.

Officials also discussed the effects of geopolitical factors on the economy, noting that geopolitical events could lead to severe supply bottlenecks or increased transportation costs, thereby exacerbating pricing pressures and inhibiting economic growth. Similarly, such events can put upward pressure on commodity prices, posing a risk of rising inflation. Although most service prices are relatively stable at present, they are still significantly higher compared to pre-pandemic levels.

In response to inflation, American consumers have started to make adaptive adjustments. Johannes Thomas, CEO of Trivago, reveals that compared to before, consumers now tend to book earlier, choose closer destinations, reduce the number of travel days, and lower accommodation standards, switching from five-star hotels to more cost-effective three-star stays.

The latest government data shows that compared to the same period last year, airfare prices have decreased by 6%, hotel prices have gone down by 0.4%, and the cost of renting cars or trucks has reduced by 10%. According to AAA data, the national average gas price is about $3.60 per gallon, approximately 6 cents higher compared to last year. AAA spokesperson Alexa Diaz noted, "Since the pandemic, we have not seen a decline in traveler numbers. These figures continue to grow year over year, and currently, there's no sign that this growth will stop."

The robust U.S. labor market is one of the main factors underpinning consumer spending, and even though the market has cooled slightly, the unemployment rate remains near historic lows. Some economists believe that even without savings accumulated during the non-pandemic period, the strong labor market is sufficient to support consumers in maintaining their current consumption patterns.

Olu Sonola, the head of U.S. regional economics at Fitch Ratings, indicates that given the stubbornness of inflation, the lack of income growth, and the decline in consumer confidence, it is expected that the growth in U.S. consumer spending is slowing. This will lead to a consumption growth rate below the normal level in the second half of the year. The annual growth rate of consumer spending for 2024 is expected to be 1.9%, compared to 2.2% in 2023, marking a slowdown. This slowdown may become apparent in the second half of the year due to further deceleration of income growth, the diminishing effect of savings accumulated during the pandemic, and the continuous rise of real interest rates.