US Consumer Spending Flashes Warning as Shutdown Fears Mount
A new survey shows 45% of Americans are delaying major purchases, more than double the figure from early October, threatening Q4 economic growth.
A sharp erosion in consumer confidence is threatening to derail U.S. economic momentum, as a new survey reveals that 45% of Americans are now delaying major purchases such as cars and appliances due to the ongoing government shutdown. The figure, from a poll released by Business Wire, has more than doubled from 21% in early October, signaling a significant headwind for the consumer discretionary sector heading into the crucial holiday shopping season.
The finding amplifies a growing chorus of warnings from recent economic data. The University of Michigan's closely watched consumer sentiment index registered a preliminary reading of 50.3 for November, its second-lowest level on record. Similarly, The Conference Board's Consumer Confidence Index fell to a six-month low in October, with its Expectations Index remaining deep in territory that historically signals a recession.
Analysts are now scrambling to quantify the potential damage of a prolonged political stalemate in Washington. Economists at RBC Capital Markets project the shutdown could shave up to 1.0 percentage point from fourth-quarter GDP, a figure that could escalate to 3.0 percentage points if the impasse extends through December. Other estimates suggest a month-long shutdown could slash consumer spending by as much as $30 billion.
"The primary engine of the U.S. economy is the consumer, and that engine is beginning to sputter," commented a senior economist at a major Wall Street firm. "This is no longer a theoretical risk; we are seeing the real-time impact of lost wages and profound uncertainty on household balance sheets."
The economic pain is not being distributed evenly. The shutdown is disproportionately affecting lower-income households, a situation exacerbated by the pause in Supplemental Nutrition Assistance Program (SNAP) benefits that began in November. With SNAP accounting for roughly 10% of retail grocery sales, its suspension is expected to have ripple effects as families are forced to reallocate funds from other discretionary areas to cover food costs.
This is contributing to what some analysts are calling a "K-shaped" dynamic, where high-income consumers maintain spending levels while lower- and middle-income households, already contending with moderating wage growth, are forced to pull back significantly.
Compounding the issue for investors and policymakers is a "data blackout" caused by the shutdown. The shuttering of federal agencies means key economic reports, including official retail sales and inflation data from the Commerce Department and Bureau of Labor Statistics, are delayed. This information vacuum complicates the Federal Reserve's ability to accurately assess the economy, potentially delaying crucial interest rate decisions.
Despite the gloomy outlook, the National Retail Federation is still forecasting a modest 3.7% to 4.2% growth in holiday sales over 2024. However, achieving that target appears increasingly challenged as consumers signal a clear shift toward caution, prioritizing essential purchases and actively hunting for deals over big-ticket discretionary items.