Consumers have been on a spending spree since the economy reopened and stimulus programs rolled out. At the same time, four-decade-high inflation has also been pushing prices to unprecedented levels in the past year. All of this has pointed toward consumer spending patterns that have reached new heights. Quite frankly, since last year, I have been touting that this renewed pace of spending is unsustainable. I have been proven wrong—at least to date.
Whether you agree with the policy decisions to stimulate the economy during the past three years, it is clear that the actions by the federal government shortened the length of the economic fallout and extended the recovery that ensued. The intentional shift has clearly impacted consumer behavior. Consumers felt flush with cash, homeowners were locked in record-low mortgage interest rates and wages ratcheted up in response to labor shortages. As a result, slowing the spending spigot has been difficult for many.
The national supply of money is still near an all-time high. The federal debt has hit the ceiling. The consumer loan balances have reached new highs. Savings rates recently fell to the lowest level since 2005. The amount consumers are spending is now exceeding the amount of their income.
Despite this, the sky is not falling. Household net worth recently reached an all-time high. The amount of cash on hand in banks recently hit an all-time high. Corporate profits also recently hit an all-time high. Household debt service payments remain below levels reported in the pre-pandemic era at the end of 2019.
When we look to local indicators of consumer spending, similar trends emerge. We continue to hear about the pace of gaming revenues generated by Nevada casinos, which includes 23 consecutive months of revenue in excess of $1 billion. Let’s not forget that the state was reporting billion-dollar months of gaming revenue month-over-month before the shutdown, but the pace has accelerated during the recovery.
Taxable retail sales, another indicator of consumer spending, have also been on a tear. Taxable sales skyrocketed as the market shifted from spending on services to goods and internet-based sales followed suit. Statewide taxable sales in December set an all-time monthly record of $8.2 billion. The year 2022 included nine of the 10 highest-grossing months ever, leading to an annual record of $85.2 billion in taxable sales, approximately one-third higher than the total reported in 2019. These gains are slightly less dramatic when viewed on a per-capita basis, as per-capita spending was up 25.9 percent compared to a similar period three years earlier.
There is a disconnect, no question. Yet, somehow broader economic fallout has not ensued despite concerns of a recession looming on the horizon. While I continue to believe the pace of activity is unsustainable, it does not mean the correction to come will be catastrophic. Ups and downs in the economy are normal, and they are expected. As much as the current volume of consumption may be elevated, returning to more normalized levels of demand may be exactly what the economy needs to shore up supply-chain challenges, align employee headcounts with the need, curb the rate of inflation and temper interest rate adjustments.
Transitioning from a spree to sustainable will mean the economy is on more stable footing to embrace the next phase of broader economic expansion.
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.