Savannah Chamber

9 3 Outlays increased by an above trend rate of about 6 percent in 2021. Due to the pandemic, consumers outlays declined by about 3 percent in 2020. The modest drop in consumer spending predicted for 2023 reflects the strength of the labor market as well as the strong economic and financial positions households achieved over 2021-22. In the wake of the COVID-19 recession, employment quickly surpassed its pre-pandemic peak and set a new record high level in 2022. Unemployment rates fell to very low levels. At times in 2022, two jobs were available for every unemployed worker. In nominal terms, wages, salaries, and benefits soared. Although inflation eroded much of those gains, households' balance sheets were in good shape. Despite setbacks in the equities market, households' net worth rose to high levels courtesy of rapid home price appreciation in the wake of the pandemic recession. In addition, most of the excess savings accumulated during the pandemic remains unspent. In 2022, consumers sustained spending due by reducing their spending out of current income and by spending some of the excess savings that accumulated since the onset of the pandemic. In 2022, the personal savings rate out of current income declined to 5 percent from 12 percent in 2021 and from 16 percent in 2020. In 2023, we expect the savings rate out of current income to remain at about 5 percent. As of March of 2022, households were sitting on about $2.7 trillion (the equivalent of 14% of GDP) in excess/unanticipated savings. In the remainder of 2022, higher inflation caused households to spend down some of that accumulation, but the unplanned savings will not be spent quickly. Older, higher-income, high-net worth households saved the most and will use their unplanned accumulations as retirement savings – or to fund long-term investments – rather than spend the money quickly. The demographics of the big savers therefore will spread the spending from accumulated savings over time. Households' excess savings therefore will continue to support consumer spending in 2023, albeit to a lesser extent than in 2022. We expect an unusual degree of job security for an economy that is in recession. That will help limit the decline in consumer spending in 2023. We expect the unemployment rate to rise, but not dramatically. Stable labor market conditions – at least compared to previous recessions – will prevent consumer confidence from sliding much lower in 2023 than it already was in 2022. That will limit the downturn in consumer spending. Compensation per hour probably will rise slightly, but the number of hours worked will decline. That mixed combination will support limited wage and salary income growth. We do not expect another massive federal government stimulus program in 2023. Personal income derived from federal transfer payments therefore will not increase very much in 2023. For the year as a whole, nominal personal income will rise by about 4 percent, which implies that inflation-adjusted personal income will be essentially flat. In 2023, growth in consumer credit will slow, but not come to a full stop. Credit will be more expensive, but high inflation will push consumers to use more credit. In 2021-22, credit expanded sharply. In 2021, non-revolving credit grew much faster than revolving credit, but the pattern reversed in 2022 due to the housing slowdown. In 2023, we expect revolving credit to grow and non-revolving credit to decline. Lenders will tighten credit to customers, but not too dramatically. In addition, non-traditional lenders will continue to offer credit to customers. Household balance sheets are in good shape, which bodes well for credit growth. Due to fiscal stimulus, low interest rates, surging home prices, and forbearance, households' bankruptcy filings fell to low levels in 2021-22. As the economy weakens and home prices decline, bankruptcies will increase, but probably only to levels considered normal prior to the pandemic. Indeed, many households are still well positioned to take on and service additional credit. Debt burdens borne by households are low. Households deleveraged in the wake of the Great Recession and deleveraging continued throughout the COVID-19 recession. Specifically, the ratio of debt service payments to households after tax income fell to 9 percent in 2021. The ratio rose to 10 percent in 2022, which is still considered very low. In comparison, the debt service ratio was 13 percent leading up to the Great Recession. Another positive for consumer spending is that many

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