| Consumer spending declined in November and December. Consumers’ ability in the last 18 months to keep spending above inflation was impressive. It seems that ability is finally waning.
Why it matters: We’ve at last hit the inflection point where accumulated savings and credit card balances can no longer help consumers keep spending above inflation.
- This is likely to carry over into 2023, which means the beginning part of the year is unlikely to keep pace with the strong 2.9% growth in the fourth quarter of 2022.
By the numbers:
- Consumption fell 0.2% in December.
- Accounting for inflation, real spending was down 0.3% because inflation was 0.1%.
- Inflation-adjusted spending on goods was down 0.9% (durables 1.6% and nondurables 0.4%).
- Inflation-adjusted spending on services was unchanged.
But: The silver lining to the recent data is that income, including salaries and wages, continues to grow strongly. It rose another 0.3% in December.
- That will put a floor on the drop in spending even if it doesn’t prevent a decline.
Bottom line: Inflation-adjusted spending won’t grow again until inflation falls more, especially for necessities like food, energy, and housing, which is putting the most strain on families’ budgets. |
