What Recession? Consumer Spending Was Strong in Late November, Lessening Fears of an Economic Decline

Strong holiday spending makes a recession seem less likely.

For months on end, financial experts have been cautioning consumers to gear up for a recession in 2023. The Federal Reserve has been aggressively raising interest rates in an attempt to slow the pace of inflation. In doing so, it's been making it more expensive to borrow money, whether in the form of an auto loan, personal loan, or credit card balance.

Many experts are convinced that the Fed's actions will lead to a notable decline in consumer spending, which could, in turn, spur a recession. But so far, higher borrowing rates don't seem to be stopping consumers from buying things. In fact, holiday spending figures for Thanksgiving weekend were notably higher than they were in 2021, suggesting that the Fed's interest rates policies aren't spooking consumers enough to cut back on spending.

Spending was up this year

Some initial projections called for a weak 2022 holiday season due to higher borrowing rates. But so far, the numbers are looking strong for retailers.

It's estimated that a record 197 million Americans shopped between Black Friday and Cyber Monday this year, according to the National Retail Federation. That's a 10% uptick from last year.

All told, consumers spent an average of about $325 on holiday purchases over Thanksgiving weekend. That's a higher total than last year, when consumers spent $301 on average in the course of the holiday weekend.

Meanwhile, shoppers set a record on Cyber Monday by spending a whopping $11.3 billion that day alone. That's a 5.8% increase from last year, reports Adobe Analytics.

Are those recession fears overblown?

The fact that Americans spent so much money over Thanksgiving weekend despite higher loan and credit card interest rates indicates that we may be less likely to enter recession territory in 2023 than some initially thought. While many people have struggled this year in the wake of inflation, a lot of Americans are still sitting on extra money in their savings accounts thanks to last year's stimulus policies. And they may feel comfortable spending it, whether on the holidays or in general.

That's why it may be premature to panic about a 2023 recession. This isn't to say that Americans shouldn't try to shore up their savings in case economic conditions decline and unemployment levels pick up. But the fact that the holiday shopping season is off to such a strong start is a pretty solid indication that things may not become so dire in the new year.

Of course, those without emergency savings should make every effort to build up some cash reserves as soon as possible. In fact, it's ideal to have enough money in savings to cover at least three months of essential living expenses (and for better protection, more like six months' worth). But those who have been losing sleep over the idea of a 2023 recession may now be able to breathe more easily knowing that higher borrowing costs aren't stopping consumers from pumping money into the economy and keeping it going strong.