|
|
Consumer spending increased 1.8 percent in this year’s first quarter, year over year, according to the U.S. commerce department, dramatically lower than the 3.1-percent increase the department had estimated previously.
Adjusted for inflation, the gain was only 0.5 percent during the period, slipping a fraction from 0.6 percent in 2021’s final quarter.
Spending on services rose during the first three months of this year; spending on goods fell, perhaps because consumers already had bought so much merchandise during the COVID War.
Consumers have been rebalancing their spending, shifting from an emphasis on goods to one on services and experiences, as we reported in “Consumer Spending Rebounds. What’s Next” (22 Feb 2022).
The U.S. economy contracted 1.6 percent during the quarter, the first contraction since mid-2020 as exports, private inventory investment, and government spending at all levels declined.
Adjusted for inflation, the contraction was 0.4 percent.
The fact that “consumer spending was revised sharply lower…indicates the economy carried less momentum than previously thought heading into the second quarter,” Lydia Boussour, chief U.S. economist at Oxford Economics, said to the Financial Times.
Consumer spending is responsible for more than two-thirds of U.S. GDP.
TREND FORECAST: The revised first-quarter figure for consumer spending indicates the economy was already slowing before mid-March, when the U.S. Federal Reserve raised interest rates for the first time in six years.
The U.S. economy did not return to growth in the second quarter and, absent a dramatic unexpected event, is unlikely to in the third.
Inflation and higher interest rates will persist through the current quarter, continuing to squelch consumer demand and hold the economy in Dragflation, our Top 2022 Trend, with rising prices and declining economic output.
Misery Loves Company
U.S. factory production slowed to a two-year low in June, with the number of new orders also shrinking for the first time in two years, another sign that the U.S. economy is slowing under the weight of inflation and rising interest rates.
Also, the number of factory jobs decreased in June for the second consecutive month.
The Institute of Supply Management’s index of U.S. factory activity slid to 53.0, its lowest mark since June 2020, compared to 56.1 in May.
We forecast a reading of 47 will signal recession.