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Inflation is up and confidence is down but the American consumer keeps spending

Customers holding Nordstrom shopping bags in a mall.
REUTERS/Mark Makela/File Photo
Holiday shopping spree.
  • Nate DiCamillo
By Nate DiCamillo



US consumers may be feeling down on the economy, but that’s not keeping them from shopping.

Americans are spending more money than before the pandemic even as consumer sentiment slumped to a 10-year low in November. They also seem to be shrugging off rapidly rising prices; in October, inflation hit an annual rate of 6.2%, a 30-year high.

US retail sales increased by 1.7% in October from the previous month, according to government data, higher than the 1.5% increase that economists expected. Spending was up even accounting for higher prices; adjusted for inflation, sales rose 0.8% month-over-month, double from the jump in September, said Gregory Daco, chief US economist for economic forecasting firm Oxford Economics.

Overall, retail sales are 21% higher than their pre-covid levels, as Americans spent more on everything from electronics to furniture to building materials. Car sales also rose, while spending on clothing dropped.

A combination of easing supply constraints for the auto industry, covid-19 cases declining, and Americans getting their holiday shopping out of the way contributed to the increase, Oxford noted.

There are several reasons for the mismatch between how Americans say they are feeling and how much they are spending. The job market is improving, with workers in some sectors seeing a jump in wages. And with households sitting on a record amount of savings, consumers may be feeling they can afford to splurge. Some observers, including Nobel prize-winning economist Paul Krugman, also believe sentiment data may now be more of a reflection of political beliefs than an assessment on the economy.

Oxford expects Americans to keep spending at a brisk pace in 2022—they’re forecasting a 4% jump in consumer spending next year.

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