Consumer Spending Shows Signs of a Rebound

Credit card spending bounced back in early 2023, and sentiment inched upward

Men shop for clothes in a boutique

Thomas Barwick / Getty images

Consumer spending—the engine of the U.S. economy—is showing signs of revving up again despite inflation, interest rate hikes, recession fears, and stock market woes. 

Credit and debit card spending per household was up 5.1% over the year in January, compared to just 2.2% in December, indicating a rebound from a lackluster holiday shopping season, a Bank of America Institute analysis of card data showed Friday. On top of that, a poll of consumer sentiment by the University of Michigan showed the public’s feelings about their own finances and the economy improving slightly in early February—another sign that the spending engine isn’t stalling out just yet.

The extent to which people continue spending versus cutting back on their purchases will influence whether the U.S. sees an economic downturn in the months ahead, and if so, how bad it will be. The resilience of shopping is remarkable considering all the things working against consumers, economists said. Inflation is eating into household budgets, and the Federal Reserve’s ongoing campaign of anti-inflation interest rate hikes has made consumer debt for things like cars and credit cards more expensive. Last year’s surge in mortgage rates has stifled the housing market. The bear market for stocks has hurt household wealth, and many companies are bracing for a recession.

Granted, consumer spending showed signs of weakening at the end of 2022, with an official measure of spending ticking down 0.3%, and borrowing for credit cards and auto loans taking a nosedive—but the data doesn’t yet point to a collapse like what happened in the Great Recession.

“We haven't quite seen that demand cliff, like where people just stop buying things and only shop in dollar stores,” said Joshua White, a professor of finance at Vanderbilt University and a former economist at the Securities and Exchange Commission. “I think the consumer is hanging in there somewhat.” 

Multiple factors are helping people keep spending despite all the economic turmoil. Crucially, most people still have jobs: the unemployment rate hit its lowest in more than 53 years in January. And even after recent declines in home values, prices are still 39% higher than before the pandemic, according to the S&P CoreLogic Case-Shiller Home Price Index. That’s left many homeowners with a pile of equity to tap into if they need it.

Furthermore, Bank of America noted many people got a boost to their income at the beginning of the year. Social Security benefit recipients got the largest cost-of-living adjustment since 1981, and a boost to the minimum wage in many states put more cash in the pockets of workers with lower income.

"While spending was slowing toward the end of 2022, consumers have entered the new year with a spring in their step” said David Tinsley, senior economist for Bank of America Institute, in a press release. “With favorable macro tailwinds like the strength of the labor market and income gains, we have reasons to be hopeful that this increase is not just a blip but rather a longer-lasting trend.”

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  1. Bank of America. "BofA Data Finds that 2023 is off to a Strong Start for Consumer."

  2. University of Michigan Surveys of Consumers. "Preliminary Results for February 2023."

  3. S&P Dow Jones Indices via Federal Reserve Economic Data. "S&P/Case-Shiller U.S. National Home Price Index."

  4. CoreLogic. "Homeowner Equity Insights – Q3 2022."

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