U.S. consumer spending to cool sharply: Fitch

A central driver of the U.S. economy — consumer spending — is set to slow sharply in the first half of 2024, Fitch Ratings says.

In a new report, the rating agency said it is expecting the powerful U.S. consumer to slow its spending significantly as the drag of higher interest rates intensifies, cooling labour markets and slowing wage growth in the fourth quarter.

“Strong income growth has been largely responsible for the recent strength in consumer spending. However, wage income — the dominant driver of household income dynamics — looks set to slow as employment and wage growth weaken,” said Olu Sonola, head of U.S. regional economics at Fitch, in a release.

Additionally, much of the excess savings that households built up during the pandemic has now been depleted. Fitch estimated that 80% of that added savings has been used to support consumer spending over the past couple of years.

At the same time, it noted that household debt has “increased substantially over the last four quarters … largely driven by mortgage debt and credit-card borrowing.”

Home equity lines of credit (HELOCs) have grown for the first time since the global financial crisis, Fitch said, “suggesting consumers are tapping into the significant increase in real estate equity built up since 2020.”

Fitch said it also expects student loan delinquency rates to quickly trend higher, to pre-pandemic levels or higher, amid rising debt-service costs.

“Debt service is expected to trend higher in the coming quarters as student loan payments resume and higher financing costs take hold for much longer,” Sonola added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.