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With the flow of free government money ending and inflation rising, U.S. consumer spending edged down 0.6 percent in December from November, the first monthly decline since February 2021, the U.S. commerce department reported.
With the fear of Omicron spending and people afraid to go out, plus a 7-percent inflation rate that set a 40-year record, spending on goods was down 2.6 percent in December as consumers had finished much of their holiday shopping earlier. In the same month, the Personal Consumption Expenditures Index, a key measure of inflation, grew at a 5.8-percent annual rate, more than at any time since September 1983.
And afraid of getting sick with COVID or coughs, consumers spent 0.5 percent more on services, due largely to Omicron-related health care needs. Consumer spending retreated as many aspects of the economy grew stronger (see related stories in this issue).
The U.S. GDP added 6.9 percent in 2021’s last three months as consumers spent for the holidays. Wages and salaries grew by 0.7 percent in December and the personal savings rate rose to 7.9 percent, its second consecutive month of gains, but still just a tenth of a percent higher than it was pre-COVID War level.
The word on The Street is that “We estimate the slowdown [in consumer spending] will be short-lived,” Bloomberg analysts said in a public statement, “with virus cases having already peaked.
“Robust gains in labor income will continue to support healthy gains in consumer spending as the year progresses,” they predicted.
TREND FORECAST: While Bloomberg analysts are bullish on consumer growth, their reasoning defies the facts. As we have detailed, labor income has not kept up with inflation, thus, consumers have less money to spend.
And with interest rates rising, it will cost more to borrow money, which will slow down spending. However, that will not be apparent for several months to come.
Any reports this year of increased consumer spending must specify whether inflation has been factored into the numbers. Consumers will spend more this year to buy the same amount of goods, or even less, than last year.
Reporting “consumer spending is up” as if that alone is positive for the economy will be deceptive without the figure being compared with inflation.
Also, when the COVID War winds down in late March, mid-April, as we forecast, there will be a sharp spike in consumer spending.