The Impact of Excess Savings on Consumer Spending

The US economy's resilience in 2023 is driven by consumer spending, despite concerns about inflation. Although real disposable income declined in 2022 due to inflation and the end of COVID support payments, households were able to rely on their excess savings. However, as the stock of excess savings diminishes, there is concern about future spending. Fortunately, real income is now growing at a healthy pace, with 4% growth in real disposable income projected for 2023. Wages are still increasing, employment is growing, and low headline inflation allows for higher real wages. The stability of 30-year fixed-rate mortgages also supports consumer spending. Overall, consumer spending is expected to continue growing at around a 2% rate.