The Surprising Resilience of the American Consumer (Taylor's Version)

If US consumers are concerned about an impending recession, they are not showing it. Despite costs of living rising nearly everywhere and economic doomsday scenarios governing national news, household spending in the US has remained flat in nominal terms. This is largely attributable to savings build up throughout the pandemic, when Americans, devoid of opportunities to spend, stashed away some $2.1 trillion^[1]. Now, nearly two years into the economy’s reopening, they are still making up for lost time, and between abstract assessments of consumer price indices, nonfarm payrolls, and mortgage costs, it is easy to lose track of what the American consumer is really thinking about: Taylor Swift.

Throughout the depths of Covid lockdowns, artists holed up in home studios, doled out a steady stream of pandemic soundtracks and fans, starved of live experiences for two years, are now rushing to see them live. And they are not being stingy. The 3.8 million lucky fans attending one of Taylor Swift’s 60 concerts of the US-leg of her Eras tour reportedly spent an average of $1,300^[2].  on the experience; $4.9 billion in aggregate, roughly the annual economic output of Fiji^[3]. In the grand scheme, the tour is of course merely a fragment of the wider US economy, and anecdotal evidence at that. Yet, it gives intriguing insights in consumer spending patterns.

First, the scope of the spending is immense. Of the $1,300 spent on average, only $250 is attributable to the cost of the ticket^[4] , leaving more than $1,000 for merchandise, transport, accommodation, and hospitality. Consumers are still willing to spend big even on items outside the “core” experience. This was clearly visible in inflation figures over the past 15 months, with hospitality, leisure and transport services suffering from significant wage pressures^[5] as businesses struggled to find the resources to serve the surge in demand. Still, this allowed local economies to thrive despite gradually tighter monetary policy. 

Secondly, it does not look like they are done. Extra tour dates are being added and sold out well into 2024. Indeed, a recent McKinsey report noted that more than 40% of Americans “intend to splurge”^[6] in the coming months, specifically with regards to experiences and services. If the most widely anticipated recession in history is to materialise in the immediate future, consumers do not seem too worried.

Can’t Stop, Won’t Stop Groovin’

Measured by anecdotal evidence such as this, Consumer sentiment paints an optimistic picture of spending over the coming months. Households have burned through much of their excess savings since the economy has reopened but have another $500bn to go^[7] before reaching pre-pandemic levels; a sufficient buffer to support spending until the end of year at least. In the meantime, hiring is beginning to normalise and wage pressures in key industries are continuing to abate. Inflation, while not at acceptable levels, has moderated enough to allow wages to grow in real terms, enabling consumers to recoup some of their lost savings even as they continue to chase their favourite artists across the country.

Undoubtedly, tighter monetary conditions will lead to a slowdown in growth in the US and Globally. However, consumers are well positioned to support the economy even throughout a mild downturn. It might not be such a Cruel Summer after all.

Sources:
[1] Federal Reserve Bank of San Francisco (https://www.frbsf.org/economic-research/publications/economic-letter/2023/may/rise-and-fall-of-pandemic-excess-savings/)
[2] QuestionPro (https://www.globenewswire.com/en/news-release/2023/06/08/2684710/0/en/Generating-5-billion-the-Taylor-Swift-The-Eras-Tour-has-an-Economic-Impact-Greater-than-50-Countries.html)
[3]: World Bank
[4]: Forbes (https://www.forbesindia.com/article/lifes/from-taylor-swift-to-bad-bunny-top-10-highestgrossing-live-concert-tours-of-2023-so-far/86209/1)
[5]: US Bureau of Labor Statistics
[6]: McKinsey (https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/chart-of-the-day/splurging-during-uncertainty)
[7]: Federal Reserve Bank of San Francisco (https://www.frbsf.org/economic-research/publications/economic-letter/2023/may/rise-and-fall-of-pandemic-excess-savings/)