US Consumers’ Spending Surge Drives Supply Chain Chaos

    Bloomberg News reports that amidst the dwindling global supply chain hiccups, which are fueling inflation, very little attention is being paid to the economy’s demand side of the story. This is happening even though the behavior of consumers in the United States and their spending spree habits are playing a vital role in stoking the higher prices as resulting bottlenecks of West Coast ports’ imported goods. 

    Households have gathered more than $2 trillion in savings that are in excess at the time of the coronavirus crisis. Thanks to the lockdown period a phase when the spending was curbed, and the stimulus proceeds from government and rise in housing values and equities. Simultaneously, as per a report from the government Friday, the labor market is showing signs of strengthening, with wages rising and recruitment. 

    Ready to Spend

    Card spending in the United States escalated in October. The buying spree which was triggered by the forces mentioned above is a positive side of the economy, underpinning last years’ recovery from the succession. However, too much of these good things strain suppliers as they become overwhelmed and that which leads to a surge in prices. 

    In a signal about just how strong the demand is, Bloomberg News reports that the consumers have continued with their buying spree even though the prices have witnessed a surge. As per data that has been compiled by Bank of America Corp, indicates that spending was high for about 20% from 2019 till last month, consumer confidence improved in October first ever in four months since the retreat of the delta variant, and analysts expect record sales for Apple Inc and Amazon Inc, in the current quarter. 

    In addition to this, the high earners are slated to gear up for the travel and leisure activities indulging in which have not been possible for more than almost 18 months, which further triggers fueling a binge in consumption. 

    According to Elina Ribakova, who is the Deputy Chief Economist, associated with the Institute of International Finance, there will be an “overhang of demand” which is likely to spill over into the next year. 

    Release Value

    The resilience of consumers towards higher costs also indicates that higher inflation would prove persistent than Chairman Jerome Powell of the Federal Reserve’s anticipation. According to Rebecca Patterson, Bridgewater Associates on Bloomberg TV, on October 27th, this scenario is a demand shock more than a supply shock. 

    Powell also acknowledged at a press conference Wednesday that bottlenecks are being caused by “very strong demands” and the shortfalls that are leading to a hike in prices but also reiterated the expectation for inflation to gradually drop as there is easing of constraints. 

    Powell’s gamble on Easing Inflation as Fed Waits for Jobs

    The country’s urge to spend and go on a spending spree has given it an image of an “outlier” among the other major economies. Bloomberg News reports that economist of Nomura Holdings Inc, Rob Subbaraman, states that excess demand in the United States “dwarfs” the European areas.

    The strength of consumer spending that accounts for 70% of the gross domestic product of the United States is good news for the economy of the globe. 

    There is data from across the nation that is masking data inequalities, which is slated to widen in the next months. The holiday spending spree will likely overshadow hardships related to the low-income households and the unemployed, that are sensing the pinch from government support fading and higher costs at the supermarkets and the gasoline pumps. 

    Data related to card spending collected by Bank of America indicate outlay acceleration by richer households and that which constitute a larger stake in services and travel. 

    Meanwhile in those households that earn less than $50,000 per year and those that were former beneficiaries of emergency unemployment benefits curtailed spending following the program was phased out early September, wrote economist October 21st, of Bank of America, reports Bloomberg News. 

    Keeping an eye on shelves

    In bigger cities like New York, where the living standard is high and expensive and not many drive cars, some younger residents reveal that the escalating costs have not made a dent in the behavior of the shoppers. 

    Bigger and smaller retailers are ramping up for a “gangbuster” shopping season, encouraging customers to start their shopping early. Best Buy Co, has decided to move Black Friday sales a week earlier than what it usually does. Target Corp. is already witnessing more people visiting their stores. 

    Bottom Lines

    The National Retail Foundation, according to Bloomberg News is already upbeat and predicting that retail holiday sales during November through December will show an upsurge by at least 8.5% and to a record $843 billion. The chief economist, Jack Kleinhenz of the group said that consumers are spending because they are can and can do so. 

    Inflation will foster sales figures in terms of dollars and the season could be a spoiler for the buyers that might fail to get the products due to the supply-demand chain hitches. According to the chief investment strategist at Leuthold Group, W, Paulsen, overstimulating the economy of the United States has led to improvement in the supply side, while it is not apparent immediately amidst all the delays and disruptions. 

    Due to the tight labor markets, companies are being forced to become more productive and the surge in the capital good orders is an indication that business leaders are planning investments for the future.


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