Banking disruption is seen as the next test for consumers. If they go ahead and blow it up too, we’re in big trouble.
Written by Wolf Richter for WOLF STREET.
Inflation-adjusted and seasonally-adjusted consumer spending rose sharply in January and rose sharply in October, following declines in December and November, according to Bureau of Economic Analysis data. decreased by 0.3% in the month. today.
Do you want to keep that noise down? The gray inset shows details of this cryptic noise, which makes the underlying trend more difficult to see. But we’ll quickly cut through that noise to see these trends.
Adjusted for inflation, consumer spending rose 2.5% compared to February a year ago. This is solid growth.
A 3-month moving average line shows the trend.
Inflation-adjusted personal consumption in generalWhen viewed as a 3-month moving average (smoothing the monthly zigzag), there is a solid uptrend. .
The 3-month moving average of ‘real’ consumer spending in February increased 2.4% year-on-year.
By comparison, during the boom period from 2015 to 2019, interest rates dropped significantly and “real” consumer spending increased by an average of 2.9%.
So recent growth has been a bit slower than Good Times. But despite inflation and the highest interest rates in years, it’s still surprisingly strong.
Inflation-adjusted service spending, and is rising steadily but at a faster pace when expressed as a 3-month moving average. In February, it rose 3.3% year-on-year.
This growth is above the five-year average of 2.3% from 2015 to 2019, and could still be followed by reprisal spending on travel, personal care and other services cut during the pandemic. .
Services accounted for 61.8% of total consumer spending. This includes housing, utilities, insurance of any kind, medical, travel bookings, streaming, subscriptions, entertainment, repairs, cleaning services, haircuts, and more.
Inflation-adjusted spending on durable consumer goodsis still growing 2.7% year-on-year, despite stimulus funding long gone. Apparently, Americans aren’t about to give up on buying things. Durable goods include new and used vehicles, appliances, furniture, electronics, tools, and more.
February’s 3-month moving average increased at a slower but more realistic rate (+2.2%) than the year-over-year (+2.7%) in February itself.
Spending on non-durable goods, adjusted for inflation, has slowed down considerably and is now barely growing. In February, it was up less than 1% year-over-year. Non-durable goods are dominated by food, fuel, apparel, shoes and household goods.
The 3-month moving average is actually down a bit (-0.3%) from a year ago. This is where food and fuel inflation hit Americans early last year. Over the past six months, the three-month moving average has increased by 0.7%.
The trend: Quite surprising given how much interest rates have jumped.
Are consumers outpacing inflation as spending on services, including revenge travel, continues to outpace inflation? – Growth in consumer durables spending is still holding up. Spending on non-durables remained flat last year, but has recently started to pick up again.
Despite rising interest rates, consumers are unwilling to slow down, making and spending money.
And they seem to be starting to live with inflation. They obviously hate it when faced with inflation. They whisper about it and try to dodge it, but life goes on and this inflation goes on. Consumers have adapted and consumption continues.
The Next Challenge for Consumers: Banking Disruption.
So far, consumers have passed all tests. Overwhelmed by inflation, then by rising interest rates, we keep hearing stories of mass layoffs, and asset prices have fallen from their peaks. Many of them have plummeted, but nothing has slowed consumers down so far.
In March, which isn’t reflected in the spending numbers here, consumers had a new headache.
Fed officials, including Chairman Powell, have suggested that consumers will cut rates because of these concerns and tightening credit conditions.
And while this banking turmoil may ultimately cause consumer spending to slow, the banking turmoil has already subsided and consumers whose deposits are below FDIC limits (majority consumers) weren’t worried about it anyway. .
So it remains to be seen if this is another thing that consumers will also go ahead and blow away. .
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