The consumer is the main driver of the US economy. Private consumption accounts for approximately 70% of nominal GDP.
Right before the pandemic (Feb 2020), consumer spending was $14.7 billion, as reported by the St. Louis Federal Reserve. It dropped to a low of $12.1 billion in April 2020. By January 2021, it had surpassed pre-pandemic levels ($14.9 billion) and has been trending up ever since. In September 2022, it was reported at $17.6 billion.
The following shows the consumer spending rate for the last four months as reported by the BEA (Bureau of Economic Analysis):
- September 2022 0.6 %
- August 2022 0.6 %
- July 2022 -0.2 %
- June 2022 1.2 %
In the current economic environment, the consumer is facing high inflation. Wages have risen to help offset some of the loss in spending power due to inflation. However, inflation is higher than the rate of wage increases, squeezing buying power.
In the last report, consumers increased their purchases of motor vehicles, food, clothing, prescription medication, and recreational goods, according to Reuters. Except for recreational goods, spending is mainly on necessities. Additionally, consumers spent on transportation for their daily commutes and rent, showing more spending on necessities. So while consumers are spending more, it is mostly on essentials with increased spending due to inflation.
This spending also comes at the cost of savings. The savings rate fell to 3.1% compared to 3.4% in August. The gap between disposable income and outlays continues to shrink, indicating that rising prices are straining households. Current disposable income was $18.8 trillion, while outlays were $18.2 trillion.
Consumers are financing some of their daily expenditures. Credit card balances are climbing. They're up 9% since January and 23% from their pandemic lows in April 2021.
However, the consumer remains fairly strong. “I think the consumer backdrop is slowing but still strong,” Wilmington Trust’s Chief Economist Luke Tilley told the Wall Street Journal.
https://www.bea.gov/data/consumer-spending/main
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