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Consumer spending rose 0.9 percent in April from March, its fourth consecutive month of increases as the U.S. savings rate crashed to 4.4 percent of income, its lowest since 2008 amid the Great Recession, the U.S. commerce department reported.
Vehicles and services led the spending spree, which seems to have been funded by people short-changing, or dipping into, their savings accounts.
Services that saw the greatest gains in spending were food services, lodging, and utilities, the latter as energy prices zoomed. (See related story in this issue.)
“We have finally reached the point where households are dipping into their $4 trillion of excess savings,” built up during the COVID War, chief economist Stephen Stanley at Amherst Pierpont said to The Wall Street Journal.
The news, released Friday, helped keep stock prices aloft to close the week with solid gains. (See related story in this issue.)
Changes in spending levels are not adjusted for inflation, meaning a portion of April’s 0.9-percent bump was due simply to things costing more.
Factoring out inflation, spending for personal consumption was up 0.7 percent, spending on services expanded by 0.5 percent, and spending on durable goods added 2.3 percent, the commerce department calculated.
Spending might begin to ease its pace in the weeks ahead, some analysts believe.
“With inflation particularly hitting food and gasoline, lower-income consumers are pretty much done with discretionary spending from their savings,” Amy Cutts, president of consulting firm AC Cutts & Associates, said to the WSJ.
TREND FORECAST: Prices are rising, the economy is slowing, and savings are shrinking. Those factors are herding consumers toward a time when they will no longer be able to spend as freely.
Because more than two-thirds of U.S. economic activity is related to household spending, the inevitable drop in consumption will drag the U.S. economy closer to recession or, if it is already close, push it over the edge into Dragflation: Declining GDP and rising inflation.