2022 in Review: Consumer Habits are Hard to Break
The past three years have been a rollercoaster. We need to be better in 2023
After coming off three weeks of hitting my head against the wall as I tried to collate my thoughts and opinions on managing personal finances, I had planned for this week’s article to be a little different as a much-needed change of scenery.
But then, while browsing through Chartr’s newsletter page, I noticed three charts over the last few weeks (between November 16th and December 14th) that painted a worrying picture of the state of the US consumer market as we head into 2023.
Before I go any further, I cannot recommend Chartr enough. Every week, they send a handful of intriguing graphs with insightful commentary across a variety of topics across business, technology, and society. It’s free, and no, this is not a sponsored post, just facts.
Keep in mind that the charts below are US-centric, which can sometimes fall on deaf ears around the world, but when we think about real and financial markets, the global economy is very much US-centric due to the US dollar being the de-facto world currency.
To discount what is happening in the US could very well end up surprising you in your own backyard. By many accounts, what we see happening there tends to lead what other parts of the world could experience (to different extents) by six to as much as twelve months.
As an example, a recent article by
on the most recent European Central Bank (ECB) meeting shared that European core inflation has lagged US core inflation by six months due to having a more rigid job market. By the way, The Macro Compass is another amazing publication worth subscribing to! Okay, I’ll stop plugging now.The decline in US saving rates in 2021-22 has been staggering
As inflation looks to finally be cooling in 2022 (with a ways to go in 2023), we cannot forget that things are still a lot more expensive than a year ago.
The latest US Consumer Price Index (CPI) came in at 7.1% (instead of an expected 7.3%) year-on-year for November.
So while we can expect higher costs to eat into our savings, what’s astounding is the rapid rate of decline we’ve seen in US savings rates, from peaks of 25% or more in 2020 and 2021 down to 2.3% in 2022, the lowest since 2005.
We can probably attribute much of the sharp spike in savings to being cooped up at home due to the pandemic and the government stimulus that swiftly followed.
But being bored at home with more money is also not a good thing; it very likely contributed to us caving into our spending vices, explaining at least some of the volatility.
Debt is increasing, with credit cards leading the way
There was some promise, however, from the increase in savings rates during the first two years of the pandemic. US consumers made concerted efforts to pay down credit card debt at levels not seen since the aftermath of the Global Financial Crisis (GFC).
Sadly, this didn’t last as household debt rates hit new highs in 2022, with credit card debt leading the way, increasing 15% year-on-year.
Some might wonder how we ended up here.
Yes, these have been highly uncertain times, and under such conditions, one might have expected that we’d be incentivized to continue to save and pay down debt as the uncertainty didn’t look like it was going to be tapering off any time soon.
Yet, here we are going into 2023 with the largest economy in the world having the lowest savings rate it has seen in the last 17 years and increasing levels of personal debt.
Old (online shopping) habits die hard
Now, I’m not saying this is the only reason, but I do believe that this might explain some of it.
Remember that lag between the US and the rest of the world? Well, it also takes time for changes in monetary and financial conditions to work their way into the real world that we live in (i.e., our own backyard).
Even though news of bleaker times ahead had already spread across mainstream media for most of 2022, old habits die hard. Especially shopping habits.
According to Statista, e-commerce now accounts for 14% to 15% of total US retail sales, up from 10% to 11% pre-pandemic.
Despite deteriorating economic conditions, US online shopping still managed to hit a new record of $9.12 billion this year for Black Friday in November, up 23% from 2019.
The US may not have the most consumers globally, but as the world’s largest economy, it has the conditions of being the most lucrative one; large enough to be of scale with people having ample ways to supplement their discretionary spending and consumer habits by way of “easy” credit.
Throw in the hundreds of billions spent each year by companies as the largest advertising market in the world, and you can really see why it can be hard to “break the cycle.”
So what does this all mean?
Well, we need to be better in 2023.
By this, I mean we need to plan ahead and be more aware of our spending habits, as we’re not quite out of the woods yet, so to speak.
It’s worth remembering that, before the pandemic, markets in 2019 actually began to face the economic realities of an unprecedented period of low interest rates and easy credit following the GFC in 2007-08.
This was delayed and compounded by an “adrenaline shot” of stimulus by governments and central banks around the world to try and mitigate an ensuing economic crisis caused by a global health pandemic due to COVID-19.
At the time, the public sector was faced with little choice apart from monetary policy and tools to lessen a dual blow of demand and supply shocks as the world was figuring out how to fight off and eventually live with the virus.
Then throw in a profoundly negative regional conflict in Europe with global supply chain ramifications, and it’s perhaps understandable why we still have some ways to go in terms of further market corrections as we adjust to life in the post-pandemic era.
The one positive thing we can take away from this is that while there’s a lot of talk in the news about the road ahead being bleak, we’ve actually been on that road for some time. The correction has already been underway.
But how much longer do we have to go?
Assuming no further surprises and adopting a more optimistic outlook, some experts believe that, following a recession, the US economy could begin to see some recovery as soon as the second half of 2023, with the rest of the world following after some time lag.
On the flipside, this could also continue for some time, with a recession hitting towards the end of 2023 before recovery can finally begin. The reality is that no one really knows as there are too many variables to account for.
Looking back at the last two to three years has been a reminder that, despite all the uncertainty and change that has come with it, we, as consumers, have not actually changed much.
Less savings and more debt, yet still managing to break shopping records?
Of course, there are circumstances abound, where less savings and more debt have been warranted, with families and individuals being hit hard by what’s happened over the last three years.
But I do wonder how many of us have been looking the other way, unwilling to adapt, despite signs everywhere that we’ve moved into harder times with no end in sight yet.
In so many ways, we, as a society, are worse off now than when all of this started.
We need to be better in 2023.
See you in the next one!