(509) 455-8173

601 W 1st Ave,
Suite 1000
Spokane, WA 99201

American consumers grow more cautious as spending falls

REAL ECONOMY BLOG | January 27, 2023

Authored by RSM US LLP


American consumers pulled back on their spending for the second month in a row in December amid a continuing economic slowdown and elevated inflation. Also contributing to the decline were weak income growth and the decreasing stock of excess savings.

Spending fell by 0.2% in dollar terms and by 0.3% after adjusting for inflation, which rose by 0.1% on the month, data from the Bureau of Economic Analysis showed on Friday.

Robust spending in the run-up to the holiday season in September and October was also likely a reason for the two-month drop in spending.

Personal spending

Still, consumers have grown more cautious, which will most likely result in a period of stagnated growth known as the holiday hangover.

Anticipating a downturn, consumers saved more in December as the savings rate rose to 3.4% from 2.9% previously. That put the stock of excess savings by the end of last year at $1.1 trillion, down from $1.5 trillion in the third quarter.

In a sense, this is what the Fed has been trying to do: slow down overall demand through tightened monetary policies and rate hikes.

But if spending continues to decline at this rate, the chance of a soft landing would be slim because consumer spending is the main driver of economic growth in the United States.

Excess savings

The takeaway

Inflation is falling fast, and the Fed has signaled that it will slow its rate hike campaign starting with a 25 basis-point hike next week.

We are comfortable with our base forecast of a mild recession later this year, given what we have been seeing from the data.
Inside the data

Personal income rose by 0.2% on the month following a downwardly revised 0.3% increase in November. After accounting for inflation, real income rose by only 0.1% in December.

Most spending categories dropped on the month, led by autos, apparels and furnishings, which volume fell by 2.3%, 1.7% and 1.4%, respectively.

Consumers bought more gasoline and energy goods in December as spending volume on those categories rose the most, at 1.6%, followed by transportation services with a 0.7% increase. Holiday travels certainly helped drive spending on those categories.

Let's Talk!

Call us at (509) 455-8173 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Tuan Nguyen and originally appeared on 2023-01-27.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/american-consumers-grow-more-cautious-as-spending-falls/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

HMA CPA is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how HMA CPA can assist you, please call (509) 455-8173.