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Consumer spending rose 2.1 percent in January after shrinking 0.8 percent in December, the U.S. commerce department reported.
After factoring out price inflation, consumers bought 1.5 percent more goods and services, while after-tax household incomes declined 0.5 percent.
Personal income for the month remained flat, due in part to the expiration of the expanded child tax credit implemented last July as part of the Biden administration’s American Rescue Plan.
January marked the sixth consecutive month of households’ decreased purchasing power, falling to the lowest level since December 2013, The Wall Street Journal said.
The savings rate slumped to 6.4 percent, also the lowest share of income since December 2013.
Orders manufacturers received for durable goods—those meant to last at least three years – moved up 1.6 percent to $227.5 billion.
Orders for nondefense capital goods other than aircraft, viewed as a proxy for overall business investment, gained 0.9 percent.
Inflation remained unrestrained in January, rising to 7.5 percent, a near-40-year record. Prices, especially for oil and gas, have jumped even higher after Russia invaded Ukraine, with oil briefly breaking through $105 a barrel.
If the war drives oil prices to $115, the U.S. inflation rate will rise to 10 percent, Joseph Brouselas, RSM US’s chief economist, told the WSJ, and trim 1 percent off this year’s U.S. GDP.
“The American middle-income household is the one that’s going to bear the burden of adjustment here,” he said.
Faster inflation also could prompt the U.S. Federal Reserve to raise interest rates faster and in sharper increments, which “could cool off growth even more,” Gus Faucher, chief economist at PNC Financial Services Group, commented to the WSJ.
“That’s the biggest concern I have because of this conflict,” he said.
TRENDPOST: The data cited above shows that U.S. consumers bought a greater volume of goods and services in January while prices were rising and households were saving less.
Americans’ habit of spending during a global shortage of essential goods and materials is a key cause of inflation.
The U.S. economy is caught in a dilemma: about 70 percent of the U.S. GDP depends on consumer spending. If Americans spend less, the economy may shrink; if Americans keep spending, inflation will rise.
One step that can ease the dilemma is to produce more of our goods domestically and through mutually beneficial treaties with trading partners, a step that would make the U.S. economy less dependent on global geopolitics and more self-sufficient, in line with our Top 2022 trend of “Self-Sufficient Economies.”