Two shopaholics carrying paperbags while walking along shop window

The resilient U.S. consumer is expected to weaken in the year ahead, undermining a key support for the U.S. economy, says Moody’s Investors Service.

In a new report, the rating agency said U.S. consumer spending will gradually decelerate in the next 12 months.

“Easing wage growth, dwindling savings and high borrowing costs are straining consumers’ willingness and ability to spend even more,” Moody’s said.

Discretionary goods and services, particularly sectors that sell high-ticket products will be “particularly vulnerable to slowing demand,” it noted, which will constrain their growth prospects.

“Consumers will continue to favour spending on experiences over big-ticket physical items, such as furniture and cars,” it said. “Nonetheless, spending momentum is diminishing in certain service sectors, such as gaming, lodging and restaurants.”

From a credit perspective, lower-rated companies “remain vulnerable to decelerating consumer spending growth,” Moody’s said.

Despite the expected slowing in consumer spending growth, household balance sheets remain strong, it said, and ongoing disinflation will support spending.