The number of Americans filing for unemployment benefits fell last week; yet another proof the economy isn't yielding to the Fed's rapid-fire rate hikes.

Jobless claims fell by 10,000 last week to a three-week low of 230,000, according to the Labor Department. The applications came in 10,000 below economist expectations.

Anything below 300,000 is considered a healthy labor market and a strong economy overall.

Claims have been below that key level since October 2021, when the economy was recovering from Covid lockdowns.

The number of people receiving extended unemployment benefits also fell by 11,000 to 1.702 million for the week ending Aug. 11.

Overall, the job market isn’t as hot as last year, but employers are still adding workers and layoffs remain low.

In theory, workers should still be able to move between jobs relatively easily. But there’s a catch.

Consumer spending drives everything

Consumer spending is the engine of the U.S. economy. It drives 68% of GDP.

A healthy consumer predicts everything from economic growth to corporate earnings and, yes, even jobs. If spending slowed, so would corporate earnings, forcing companies to downsize.

But so far, so good.

In June, consumer spending increased by $100.4 billion, according to the Commerce Department. Americans spent more on everything from vehicles to financial services and recreation.

Growth in retail spending also adds to the rosy picture. In July, sales at retail stores increased by 0.7%, or $696.4 billion, according to the Commerce Department.

Spending is growing, but at what cost?

While there’s no denying that consumer spending is growing and supporting jobs, Americans are racking up record credit card debt.

This troubling trend reached a new climax last quarter as credit card balances exceeded $1 trillion for the first time.

Compared to Q1, credit card debt rose by nearly 4.6%, or $45 billion.

Even Gen Zers—those born between 1995 and 2005—saw their credit card balances soar 52% to $55 billion.

According to the New York Fed, credit cards are the fastest-growing segment of total household debt, which is now a staggering $17.06 trillion.

For now, consumer spending is being looked at positively as a catalyst for economic growth. The Atlanta Fed is forecasting GDP growth of 5.9% for Q3. That’s impressive, given how quickly interest rates have risen.

But if consumer debt continues to skyrocket, other risks may be on the horizon. Especially if interest rates remain higher for longer.