Taylor Swift and Beyoncé won't prop up the US economy much longer, with Americans' COVID-era savings running dry

• US GDP rose by 4.9% over the third quarter, smashing forecasters' expectations.
• Massive spending on leisure and hospitality events, including Taylor Swift and Beyoncé concerts, helped power the surge.

Taylor Swift, Beyoncé, and the "Barbenheimer" box-office craze all gave the American economy a much-needed boost this summer.

The US's Gross Domestic Product jumped by a better-than-expected 4.9% over the third quarter, per advance estimates published in late October, for the fastest growth rate since the end of 2021.

Around half the $8.5 billion expansion was driven by consumer spending – causing some to herald the rise of so-called "funflation", referring to the emergence of entertainment and live events as a crucial economic engine.

But don't count on the uplift lasting much longer.

Funflation won't last

Americans' summer spending splurge on concert and film tickets didn't come out of nowhere.

Most big events planned for 2020 and 2021 were shut down due to pandemic-era lockdowns, before live performances and box-office screenings returned on a limited basis last year.

"Some of the spending was really unsurprising," ADM Investor Services International's chief economist Marc Ostwald told Insider in an interview last week. "This was the first proper summer we've had for four years."

"There was a sort of pent-up need to go out, to go on holiday, to enjoy the summer in way that hasn't really been possible, even in 2022 it wasn't quite all there," he added.

Others have tended to agree with that view. Bloomberg economists Anna Wong and Eliza Winger said in August that pent-up demand to see Swift, Beyoncé, and "Barbenheimer" would contribute billions to the US's GDP – but added that funflation would likely prove to be a "once-in-a-blue-moon" phenomenon, rather than a permanent trend.

Americans have blown through their savings

Consumers have tended to fund their big-ticket purchases by dipping into their leftover COVID-era savings – and it looks like the enormous cash pile is about to finally run out.

The personal savings rate gauge of disposable income peaked at a whopping 32% at the onset of the pandemic in April 2020 but has steadily declined in recent years, falling from 5.3% to just 3.4% this summer alone.

The tumbling savings rate has tended to get lost amid the clamor about the US dodging a recession and its surprisingly resilient job market – but Americans' cash stockpiles running dry could drag on growth and kill off funflation, according to ADM ISI's Ostwald.

"Will it last? No," he said. "You've run down the savings rate so a lot of people have basically been spending well beyond what they've been earning. You've got other headwinds now, things like student loan repayments restarting, and other risks like the autoworkers' strike."

Don't forget about the Fed

Higher interest rates are also likely to make funflation a temporary trend.

Since March 2022, the Federal Reserve has jacked up borrowing costs from near-zero to around 5.5% in a bid to tame inflation – and while monetary policy tends to have a lagged impact, that's already started to squeeze Americans' wallets.

The Fed's tightening campaign has driven the average 30-year fixed-rate mortgage to an eye-popping 7.8%, according to data from Freddie Mac, while unemployment has also steadily crept up in recent months.

"A large chunk of [GDP] strength came from temporary factors – the 'Barbenheimer' summer blockbusters, and concert tours by Taylor Swift and Beyonce," Bloomberg economist Eliza Winger said in a preview for the US's third-quarter growth numbers.

"The Fed has raised its benchmark rate by a cumulative 5.25 percentage points to slow the economy, and it's likely that some of the long and variable lags of monetary policy on the economy have yet to fully play out," she added.

In other words, it's easier to talk yourself into spending thousands of dollars on a second-hand ticket for the "Eras Tour" if you see it as a one-off post-COVID blowout – and much harder to justify if you're worrying about buying a house or losing your job.

That's why the Taylor Swift economy isn't likely to last.