Why Americans' 'YOLO' spending spree baffles economists

Despite past trends, US consumers are spending at record levels. Economists are mystified – and struggling to forecast an end point.

Throughout a period of sky-high interest rates, depleted savings and grinding inflation, Americans have spent with abandon.

On Black Friday, sales at brick-and-mortar stores were up 1.1% from last year; online alone, US shoppers spent a record $9.8bn (£7.72bn) online alone. Consumers spent another $12.4bn (£9.77bn) on Cyber Monday – an eye-popping 9.6% increase over last year. This holiday splurge follows a pattern of US consumer spending, which has buoyed the American economy in the past year, making up nearly 70% of the real GDP's 4.9% Q3 growth. 

While some of this spending reflects the rising cost of necessities, Americans are also still buying big-ticket items and laying out tons of cash for experiences. This "YOLO" attitude towards money bucks the spending trends of past economic downturns – and some economists have been left scratching their heads, especially as consumer sentiment on the economy remains overwhelmingly pessimistic.

"If 18 months ago, you'd have said the Federal Reserve Bank could raise interest rates by 500 basis points, and the consumer would chug on, relatively unfazed, I would have been extremely surprised," says Ellie Henderson, an economist at UK-based, global bank Investec. "I'd have said, 'that's just not how economics works'."

Typically, after a major crisis or job-market downshift, the economy generally experiences a small bump in both consumer savings and spending. However, the San Francisco Reserve Bank (SFRB) reported in May that the post-pandemic rise in fiscal spending this year has soared beyond the growth of any other post-1970s recessions. 

Much of that growth, wrote SFRB experts, is due to an "unprecedented" increase of accumulated savings in US households, driven by the US Federal Government's swift fiscal response to the pandemic. Stimulus packages that directly introduced $5tn (£3.9tn) into the US economy, combined with other indirect policies, including eviction moratoriums and the suspension of student loan payments, saved Americans about $2.3tn (£1.8tn)  in 2020 and 2021.

Although this year, people have drawn down their savings, many consumers still have money in their reserves – some for the first time ever – and they're willing to spend it now, even as they don't have faith in a full economic rebound. This sustained period of "you-only-live-once"-esque spending amid rising debt and dwindling savings has confounded many economists.

Leading the charge on this YOLO spending, reports Boston Consulting Group, are the younger, upper-middle class segments of the US population. While these individuals are not necessarily affluent, they are earning enough money to meet their needs, and are still able to spend on pleasure trips and luxury goods. Many of them are also leaning into using buy-now-pay-later (BNPL) platforms, which are experiencing major growth in the US, including during November's Black Friday shopping spree. 

"The strength of consumer spending, even after the dark days of the pandemic, has taken me by surprise," says Wendy Edelberg, senior fellow in economic studies at The Brookings Institution, and director of The Hamilton Project. 

Even if the pattern doesn't follow economic precedent, however, some experts argue it makes sense intuitively.

"When you don't really know what the future holds – or even if there's a long enough future for you – people are focusing on the present and the short-term horizon," says Chiraag Mittal, an assistant professor of marketing at the McIntire School of Commerce, University of Virginia. And, he says, amid shifting attitudes around work and life, "people are choosing to prioritise their happiness and fun".

Malcolm Harris, author of Palo Alto: A History of California, Capitalism, and the World, argues intangible factors like these often get lost in the qualitative analyses that seek to explain macroeconomic trends. "Working life can change in qualitative ways that the metrics are bad at picking up,” he says.

Even though many people are still employed and earning pay cheques, he argues, they're not necessarily happy – wages still are not keeping up with the pace of inflation, for instance, and people are still reeling from the physical and psychological trauma of the Covid-19 pandemic.

"Although job satisfaction numbers seem strong, life happiness metrics are in the dumps," says Harris. "Given how much of our life is related to work, how can analysts square that circle">window._taboola = window._taboola || []; _taboola.push({ mode: 'alternating-thumbnails-a', container: 'taboola-below-article', placement: 'Below Article', target_type: 'mix' });