Despite strong economy, Americans are spending less: 'I feel like I'm always holding my breath'

Damircudic | E+ | Getty Images

The U.S. is not in a recession. Despite nearly three years of warnings that a recession was imminent, it hasn't happened yet.

An economic downturn could still be on the horizon, but so far unemployment remains low, gross domestic product is growing and inflation has come down from its June 2022 peak.

Still, consumers don't feel like we're in a booming economy.

"I feel like I'm always holding my breath a little bit waiting to see what's going to happen," Olivia Thomas, an education professional in New Jersey, tells CNBC Make It.

As people like Thomas take a look at their personal situations and the broader economy, some are making adjustments. Consumer spending has begun to taper off, according to data from the new CNBC and National Retail Federation retail monitor. Retail sales excluding autos and gas fell by 0.08% in October, the monitor found.

Plenty of factors may be contributing to this. Federal student loan payments resumed in October, taking a bite out of millions of Americans' spendable income. Consumers may be preparing to spend more in November as the winter holiday season gets into swing. 

And overall, people may just be checking in with themselves and realizing they need to rein in their spending after a year of post-pandemic "revenge spending," when you spend more than usual or without as much consideration in response to an emotional or stressful event. Credit card debt, after all, hit a record high at the end of the third quarter of 2023.

Why people feel bad in a relatively good economy

Though inflation itself — the rate at which prices are increasing — slowed to just 3.2% in October, prices on necessities like rent and food are sitting at levels that feel astronomical compared with 2019. That, along with a number of increasingly precarious geopolitical situations and continued tension within domestic politics, has consumers wary of the economy.

"I do think we're making considerable progress in bringing inflation down. But Americans do notice higher prices from what they used to be accustomed to," Secretary of the Treasury Janet Yellen recently told CNBC's Squawk Box

Peter Hughes, a chartered financial analyst and founder of Evolve Investing, says his clients — most of whom are millennials based in New York or California — haven't made dramatic moves like cutting out their annual vacation yet, but they may be taking extra steps to keep it affordable. 

"They're much more aware, much more conscious of [their spending]" Hughes tells CNBC Make It. "They're looking at it more often and they're asking to talk about it more often."

On the other hand, there are economic factors out of individuals' control that could be getting in the way of their goals. Thomas, for example, is one of many people who have been trying to buy a home and have had to grapple with either skyrocketing prices or alarming mortgage rates, if not both.

"Instead of waiting for something to happen and prices to go down and things to shift, you need to actually shift instead," Thomas says she told herself. "Because I have no control over what's going on in the economy."

How to react to an uncertain economy

As Thomas points out, you can't control the economy. Trying to time the stock market or the housing market are almost always fruitless endeavors. 

But one positive outcome from the current economic environment is that folks may be paying closer attention to their habits. Hughes says though his clients aren't necessarily checking their budgets before they enjoy a meal at a restaurant, "they're just a bit more aware of what they're doing and how they're spending."

"I think it's actually a really healthy thing following a couple years of people spending at an elevated level after being so cooped up during the pandemic," he says.

Similar to Hughes' clients, Noah Damsky, a CFA and co-founder of Marina Wealth Advisors in California, tells CNBC Make It his clients, including Thomas, are not only re-examining their budgets, but also looking at the bigger picture.

"They're more cognizant of where we're at today, and how it might change going forward," he says. "Folks' behavior often can be short-sighted, so I think we had fewer conversations about [interest rates] then, whereas now I think it's become more of a more relevant discussion."

Looking ahead, Thomas isn't super optimistic about the future of the economy, but she takes the little wins that she can, like gas under $3 a gallon. She's inspired by successful campaigns for workers' pay and conditions, such as the recent United Auto Workers strike.

Still, she knows things can change in an instant.

"I think there will be ebbs and flows and I'm hoping to be able to ride the wave of whatever comes next," Thomas says.

DON'T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!

Get CNBC's free Warren Buffett Guide to Investing, which distills the billionaire's No. 1 best piece of advice for regular investors, do's and don'ts, and three key investing principles into a clear and simple guidebook.

I save half of my $250,000 a year salary as an AI scientist
I save half of my $250,000 a year salary as an AI scientist