Americans Are Still Spending Like There’s No Tomorrow

Consumers should be spending less by now.

Interest rates are up. Inflation remains high. Pandemic savings have shrunk. And the labor market is cooling.

Yet household spending, the primary driver of the nation’s economic growth, remains robust. Americans spent 5.8% more in August than a year earlier, well outstripping less than 4% inflation. And the experience economy boomed this summer, with Delta Air Lines reporting record revenue in the second quarter and Ticketmaster selling over 295 million event tickets in the first six months of 2023, up nearly 18% year-over-year.

Economists and financial advisers say consumers putting short-term needs and goals above long-term ones is normal. Still, this moment is different, they say.

A tough housing market has more consumers writing off something they’d historically save for, while the pandemic showed the instability of any long-term plans related to health, work or day-to-day life. So, they are spending on once-in-a-lifetime experiences because they worry they may not be able to do them later.

“It’s not a regret-filled, spur-of-the-moment decision,” says Michael Liersch, who oversees a team of advisers as head of advice at Wells Fargo. “It’s the opposite of that, where I would regret not having done it.”

Liersch cautions that it’s too soon to say whether the spate of spending is a fleeting moment or a new normal. And consumers remain frustrated about inflation as the price of many goods remains significantly higher than a few years ago.

Ibby Hussain, who works in marketing for a financial communications firm, says the Brooklyn, N.Y., apartment he and his fiancée rent for $3,000 a month would cost a million dollars to buy. At current rates, that means around $5,000 a month after a $200,000 down payment, not including property taxes. “And it’s not even that nice of an apartment.”

So, instead of saving for a down payment like he expected to after turning 30 and getting engaged in the past year, he splurged.

First, he bought a $1,600 Taylor Swift Eras Tour ticket and then he spent $3,500 on a bachelor party trip to Ibiza, Spain.

“I might as well just enjoy what I have now,” he says.

A travel boom

Ally Bank, whose online platform started allowing customers to create savings buckets for different goals in 2020, says users create about one-and-a-half times more experience-oriented buckets such as travel and “fun funds” versus those associated with longer-term planning.

Lindsey and Darrell Bradshaw went into credit-card debt to finance a vacation to Maui this past spring. The couple booked the trip only a few weeks after Lindsey, 37, quit her job to be a full-time caregiver to their 8-year-old son, who has special needs.

“We did not have the money and we were like, ‘Let’s just do this anyway,’ ” says Darrell Bradshaw, a 39-year-old general contractor in Seattle.

The trip cost about $10,000, including three, $1,000 last-minute plane tickets, 10 nights at a $385-a-night 4-star resort and several elaborate meals.

Even though the family decided to cancel subscriptions and cut back on dining out to help offset the bill, they say they have no regrets—especially since they got to see Lahaina just a few months before it was decimated by deadly wildfires.

Fears about a changing climate are driving some people to try to see places before they’re gone. In a monthly Deloitte survey of 19,000 global consumers, climate change was the only topic among 19 different concerns that respondents reported feeling significantly more worried about over the past year.

Josh Richner says he greatly lowered his retirement contribution to afford a cross-country trip that included a $7,000 Alaskan cruise so his family could see the ice caps, which have been melting at a rapid clip.

“I’ve never spent that much on a trip before,” says the 35-year-old, who says the splurge was also motivated by the pandemic and a health scare.

About six months ago, Richner and his wife decided to sell their Columbus, Ohio, home to travel the country with their two young children. Working for National Legal Center, a law firm that helps consumers resolve debt, he knows the potential consequences of living in a way that gives priority to the present. But he isn’t worried.

“I just hit a point where the thing that we had been talking about maybe hopefully doing some day, we’re going to do it now,” he says. “I’m not going to worry about money anymore. I don’t have it in me.”

Splurge purchases

Consumers might not be able to keep splurging forever. Labour strikes and student loan repayments could both lead people to pull back. Rising gas prices could also deter travel.

For those who study spending, however, the robustness up to this point has been a surprise.

In the New York Federal Reserve Bank’s August SCE Household Spending Survey, households reported spending 5.5% more than last year. The share of households that said they made at least one large purchase in the previous four months increased to 64% from 57%, its highest reading since August 2015.

“Normally at a time when you have higher inflation, but also higher interest rates, you don’t expect spending to hold up so well,” says Wilbert van der Klaauw, an economic research adviser on household and public policy at the Fed.

Rather than funnel all their spare change into a house or retirement account, Candice and Jasmine Kelly started a bucket-list fund after attending back-to-back funerals a few months ago. The couple adds a few hundred dollars from their paychecks each month into the fund, which they have used to try fancy restaurant tasting menus and buy Jasmine her dream designer handbag.

Instead of waiting to have fun when they retire, Candice, a 26-year-old management analyst in Charlotte, N.C., says the couple is trying to do the opposite. They want to enjoy their money while they’re young—even if it means working longer.

“All the rules that exist around money and lifestyle are just things people made up, so we’re playing a different game, and honestly I think we’re having more fun,” says Candice.

U.S. investors’ enthusiasm over Japanese stocks at this time last year turned out to be misplaced, but the market is again on the list of potential ways to diversify. Corporate shake-ups, hints of inflation after years of declining prices, and a trade battle could work in its favor.

Japanese stocks started 2024 off strong, but an unexpected interest-rate increase in August by the Bank of Japan triggered a sharp decline that the market has spent the rest of the year clawing back. Weakness in the yen has cut into returns in dollar terms. The iShares MSCI Japan ETF , which isn’t hedged, barely returned 7% last year, compared with 30% for the WisdomTree Japan Hedged Equity Fund .

The market is relatively cheap, trading at 15 times forward earnings, about where it was a decade ago, and events on the horizon could give it a boost. Masakazu Takeda, who runs the Hennessy Japan fund, expects earnings growth of mid-single digits—2% after inflation and an additional 2% to 3% as companies return more to shareholders through dividends and buybacks.

“We can easily get 10% plus returns if there’s no exogenous risks,” Takeda told Barron’s in December.

The first couple months of the year could be volatile as investors assess potential spoilers, such as whether the new Trump administration limits its tariff battle to China or goes wider, which would hurt Japan’s export-dependent market. The size of the wage increases labor unions secure in spring negotiations is another risk.

But beyond the headlines, fund managers and strategists see potential positive factors. First, 2024 will likely turn out to have been a record year for corporate earnings because some companies have benefited from rising prices and increasing demand, as well as better capital allocation.

In a note to clients, BofA strategist Masashi Akutsu said the market may again focus on a shift in corporate behavior that has begun to take place in recent years. For years, corporate culture has been resistant to change but recent developments—a battle over Seven & i Holdings that pits the founding family and investors against a bid from Canada’s Alimentation Couche-Tard , and Honda and Nissan ’s merger are examples—have been a wake-up call for Japanese companies to pursue overhauls. He expects a pickup in share buybacks as companies begin to think about shareholder returns more.

A record number of companies have also delisted, often through management buyouts, in another indication that corporate behavior is changing in favor of shareholders.

“Japan is attracting a lot of activist interest in a lot of different guises, says Donald Farquharson, head of the Japanese equities team for Baillie Gifford. “While shareholder proposals are usually unsuccessful, they do start in motion a process behind the scenes about the capital structure.”

For years, money-losing businesses were left alone in large corporations, but the recent spate of activism and focus on shareholder returns has pushed companies to jettison such divisions or take measures to improve them.

That isn‘t to say it is going to be an easy year. A more protectionist world could be problematic for sentiment.

But Japan’s approach could become a model for others in this new world. “Japan has spent the last 30 to 40 years investing in business overseas, with the automotive industry, for example, manufacturing a lot of the cars in the geographies it sells in,” Farquharson said. “That’s true of a lot of what Japan is selling overseas.”

Trade volatility that hits Japanese stocks broadly could offer opportunities. Concerns about tariffs could drag down companies such as Tokio Marine Holdings, which gets half its earnings by selling insurance in the U.S., but wouldn’t be affected by duties. Similarly, Shin-Etsu Chemicals , a silicon wafer behemoth that sells critical materials, including to the chip industry, is another potential winner, Takeda says.

If other companies follow the lead of Japanese exporters and set up shop in the markets they sell in, Japanese automation makers like Nidec and Keyence might benefit as a way to control costs in countries where wages are higher, Farquharson says.

And as Japanese workers get real wage growth and settle into living in an economy no longer in a deflationary rut, companies focused on domestic consumers such as Rakuten Group should benefit. The internet company offers retail and travel, both of which should benefit, but also is home to an online banking and investment platform.

Rakuten’s enterprise value—its market capitalization plus debt—is still less than its annual sales, in part because the company had been investing heavily in its mobile network. But that division is about to hit break even, Farquharson says.

A stock that stands to benefit from consumer spending and the waves or tourists the weak yen is attracting is Orix , a conglomerate whose businesses include an international airport serving Osaka. The company’s aircraft-leasing business also benefits from the production snags and supply-chain disruptions at Airbus and Boeing , Takeda says.

An added benefit: Its financial businesses stand to get a boost as the Bank of Japan slowly normalizes interest rates. The stock trades at about nine times earnings and about par for book value, while paying a 4% dividend yield.

Corrections & Amplifications: The past year is expected to turn out to have been a record one for corporate earnings in Japan. An earlier version of this article incorrectly gave the time frame as the 12 months through March. Separately, Masashi Akutsu is a strategist at BofA. An earlier version incorrectly identified his employer as UBS.

Americans Are Still Spending Like There’s No Tomorrow

Concerts, trips and designer handbags are taking priority over saving for a home or rainy day

A travel boom

Splurge purchases