The U.S. consumer’s durability as a prop for the economy may be tested in coming weeks as family budgets, particularly among the less affluent, are stressed by rising healthcare costs, the potential loss of federal food benefits, and a wobbly job market outlook that is already taking a toll on earnings.
November is typically the start of a buoyant shopping and travel season, with the Thanksgiving holiday at the end of the month and Christmas following in late December
This year it also coincides with the possible loss of food benefits for many families amid an ongoing U.S. government shutdown, and rising healthcare costs for others if federal subsidies are cut at the start of the year for insurance policies offered under the Affordable Care Act, also known as Obamacare.
Add in the lost spending by hundreds of thousands of furloughed federal workers, a raft of layoff announcements from top companies, rising prices, and a recent drop in consumer confidence, and the staying power of U.S. shoppers may be tried.
“The American economy is a $30 trillion dynamic and resilient beast, but it’s going to face a test here at the turn of the year,” said Joseph Brusuelas, chief economist at RSM US, with “adverse policy shocks emanating from Washington and the change in behavior among corporates who hoarded labor for the past four to five years. … That was never an indefinite behavior. We’re going to see migration up in the unemployment rate.”
The coming shocks to household budgets will take place against a backdrop of still-low unemployment and consumer spending that, at least as of August, was growing at a 2.7% annual rate, slower than last year but still expanding.
For now, however, policymakers at the Federal Reserve and elsewhere will lack updated government reports to understand how the economy is adapting at a critical moment, with the shutdown not only turning off benefits but also the flow of data.
Funding for benefits under the Supplemental Nutrition Assistance Program for nearly 42 million low-income people, nearly 12% of the U.S. population, was due to run out on November 1 because of the shutdown, which is now in its second month.
A federal judge in Rhode Island, however, ruled on Friday the suspension of the benefits was illegal, and it was unclear if some of them would be paid this month.
The loss of SNAP benefits, also known as food stamps, would “impose significant hardship on many households, but the impact on overall consumers’ spending and GDP probably will be relatively small,” at about $100 billion a year, said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. However, that is “just one channel through which the shutdown will weigh on activity this quarter.”
In their absence, at least a dozen states have plans to fill some of the food benefits gap, but the amounts involved are a fraction of what the program provides each month, and some large states including Texas and Florida have not announced any effort to step in.
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Economists don’t necessarily see the economy tipping into recession as a result of the growing pressures on consumers, though Brusuelas estimated the shutdown may lower growth for the fourth quarter by a full percentage point, to as low as 1%.
