Hirt: Those headwinds have led some to question the ongoing health of the consumer and what that could mean for the economy, given that consumer spending generates roughly 70% of U.S. GDP.
Our motivation in conducting this research was to stress-test the consumer runway, given the push and pull from a significant buildup in savings and the reduced purchasing power from inflation. We found that, given a range of potential economic environments ahead and considering disparities across income levels, the consumer overall is well-positioned.
Under our base case, in which the labor market softens moderately and inflation ends 2023 at around 3%, wage gains and savings drawdown could more than adequately fund consumer spending at current levels through 2023. Only in 2024 do we see excess savings being exhausted, especially under the more pessimistic assumptions about economic conditions.