Spending Habits – U.S. Consumer Spending Rises Again
For the last several months, one thing has been exceptionally resilient to high inflation and interest-rate hikes: the American consumer. Heading into the holiday season, consumer spending increased 0.8% for the month of October from September, the strongest rise since June. Accordingly, such large spending coupled with inflation and high-interest rates caused the household personal-saving rate to fall drastically. This economic measure, which draws up how much money people save after taxes and spending, reached its lowest level in 17 years. Such high spending during economic conditions such as these can cause large sums of household credit debt, which for the third quarter soared at its fastest pace in 15 years.
On the bright side, inflation continued to show signs of easing as the PCE price index reached a level of 6% in October, cooling from 6.3% in September. This important data measure is loved by the Federal Reserve, and it may show their willingness to raise interest rates by 50 basis points in December. Unfortunately, the “soft landing” the Fed has envisioned may not come to fruition, as the high numbers of consumer spending during a harsh economic environment can lead to a recession.
The reason for such persistent spending is due to a robust labor market, which has not been successfully manipulated by the Fed’s increase in interest rates. With companies keeping their layoffs to a minimum, the aggregate populous will have more sums of money to spend, which can point to the 0.7% increase in personal income that was seen in the month of October. Nevertheless, investors should stay vigilant towards Friday’s unemployment rate and nonfarm payroll releases, which can provide a clearer picture of the current job market and influence the Fed’s decision on December 14th.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
