Written by Jeffrey Bartash
Rising interest rates and a slowing economy are reducing consumer appetite
The numbers: Consumer spending rose a tepid 0.1% in November, suggesting greater vigilance by families and heavy discounting during the holiday shopping season.
Analysts polled by the Wall Street Journal had forecast a 0.2% increase.
Incomes rose 0.4% last month, the government said on Friday, faster than the rate of inflation.
Key facts: Americans spent less on goods in November, especially new cars and trucks. High interest rates have wreaked havoc on auto sales while excess inventory has forced companies to cut prices on other products.
Consumers are also likely to start their holiday shopping early, economists say. Spending rose 0.9% in October.
Spending on services, on the other hand, has also increased. Americans are spending more on things like entertainment and travel and are not buying as many goods as they did during the crisis when they were cooped up at home.
The US savings rate rose to 2.4% last month from 2.2%, which was the second-lowest savings rate on record since 1959.
Households are dipping into savings to support their spending habits because incomes are not rising as fast as inflation.
The so-called PCE price index rose 5.5% last year and the better-known consumer price index rose 7.1% over the same period.
Big picture: Consumer spending is the main engine of the economy, but it may start to falter in the face of rising interest rates. The Federal Reserve has raised rates to try to reduce inflation.
What may continue to be wasted time is a tight job market. If layoffs increase and unemployment rises, however, the economy will inevitably suffer.
High borrowing costs depress the economy by making it more expensive to buy a home or car or to borrow money.
Looking ahead: “It seems reasonable to expect people to be more cautious, now that they have lost almost half of their savings due to the pandemic, and labor market conditions are softening,” said chief economist Ian Shepherdson of Pantheon Macroeconomics.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were scheduled to open higher in Friday trading.
– Jeffrey Bartash
(END) Dow Jones Newswires
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