The long-awaited US economic slowdown has begun.

Signs are piling up — in recent data, in warnings from top retailers such as Walmart Inc. and in anecdotes from local businesses across the country — that after defying expectations all year and splurging over the summer, American households are starting to pull back.

A burnt-out consumer, weighed down by high interest rates and dwindling savings, is the surest sign that economic growth is gliding lower heading into 2024. The economy may face additional challenges in the new year as the labor market cools and wage growth moderates.

“The household disposable income side isn’t looking great — jobs growth is slowing, wages are slowing,” said James Knightley, chief international economist at ING. “We’re seeing a weaker consumer, and that’s significant.”

Monthly government data on personal spending published Thursday showed a cutback in discretionary categories like cars, furniture and gym memberships to begin the fourth quarter. Holiday shopping was also less festive, with Black Friday spending down at a number of the country’s largest chains and a record amount of online purchases made using buy-now-pay-later schemes on Cyber Monday.

The slowdown in spending — which remains fairly resilient, all things considered — will be welcomed by Federal Reserve officials, who’ve been concerned that a strong consumer could keep inflation elevated. Investors are now pricing in about 120 basis points of rate cuts in 2024, according to futures — nearly double what they were expecting as recently as mid-October.

“Consumer spending accounts for roughly two-thirds of GDP, so less shopping will mean slower economic growth,” Atlanta Fed President Raphael Bostic said Wednesday, referring to the gross domestic product. In an October survey conducted by the Atlanta Fed, companies said they see sales increasing about 3% over the next year, the lowest reading in almost a decade aside from the pandemic lows.

Third-quarter earnings from the country’s largest retailers suggest the pullback is well under way. Walmart said there was a “sharper falloff” in sales during the last two weeks of October. Target Corp.’s comparable sales declined for the second straight quarter as buyers were more careful. And Dollar Tree Inc.’s executives flagged the “increasing financial stress” among lower-income households.

The Fed’s “Beige Book” survey of regional business contacts this week hinted at the slowdown in spending and hiring across the country. Here is a sample of anecdotes:

• Philadelphia Fed: “Electric vehicles were accumulating on dealer lots as high prices, high interest rates, and consumer hesitancy curbed demand.”
• Dallas Fed: “The pace of hiring decelerated broadly, and some freight carriers, high-tech, and manufacturing companies reported layoffs.”
• Minneapolis Fed: A northern Wisconsin banker said that “People are mad about eggs costing more, but they’ll still buy a car.” Other banking contacts noted that consumers were using credit cards and HELOCs to maintain spending.
• Kansas City Fed: Consumers are increasingly likely to “share a roof and share meals” to manage household budget challenges. Restaurateurs noted that revenues fell as more customers split dishes and eschewed expensive items.

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