Consumer spending numbers for December were released recently and those combined with the newly revised numbers from November show promise for the health of the economy. New numbers and revised numbers now show that consumer spending slightly decreased in both November and December of 2022. This is the first decrease in consumer spending in about two years as consumer spending has been on the rise ever since the pandemic hit and came with boredom, new hobbies and stimulus checks. The decrease in consumer spending could mean that the high inflation we've been facing could finally make a turn for the better. The numbers come as a bit of a surprise given the timing but it's good news nonetheless. There's a chance that these numbers do nothing except give false hope but only time will tell. After all the economy is ever-changing and can be quite erratic at times. Hopefully it means we'll finally see an end to the hardships and economic strain of late.
Article: Consumer Spending Slid Again in December by the New York Times
7 comments:
Due to the pandemic many people overindulged in buying items and more due to the lack of social interaction and the uncertainty of what is to come. However now it makes sense that the consumer spending is falling because more and more people are going back to their jobs and school. Since more and more people are going back to jobs and school there is less of a need to overindulge in items.
Overall, great post!
For me, it is fascinating that we experienced a dip in consumer spending in November and December. Typically out of the twelve months of the year, consumers tend to spend more in November and December when gearing up for Christmas shopping, but some people may have bought gifts ahead or limited their gift-giving this year.
I will say that I do agree with seeing the decrease in impulse-spending overall though. I think during covid, people were quick to pick up a new hobby due to the world kind of being in flames and everyone needed a way to cope.
Great post! I do agree that the decrease in spending is a great thing for the economy short term, but it is terrbible long term. The last thing we need in the US is inflation to pick back up again while activity(consumption, investment, production) lower. Stagflation is what we have seen so far, but this trend can get worse. Do you think that this year we will continue to see markets fall, or do you think that our FED has finally solved the monetary issues we have?
A slight decrease in consumer spending might be good for high inflation rates, but it overall impedes on economic growth causing it to slow down. This can lead to a recession if GDP shows a decline especially over 2 quarters. The Fed is expected to increase interest rates again shortly, so hopefully this will begin to combat some of the inflation and restore consumer confidence on the economy, so they can continue to spend.
Hello Kory,
This is definitely an important topic in the current as central banks need this kind of information to make the correct decisions in terms of what rates they are gonna charge and their loan availability. It is contradictory that consumer spending is showing a decrease based on the fact that CPI inflation has seen a .6% decrease from the most recent numbers (current rate of 6.5%). You would think with a decrease in inflation that consumer spending would increase but there may be another reason for this. It could possibly be the fact that the monetary policies created during covid are finally starting to slow down. Additionally, we do have seasonality in terms of consumer spending, so we may just be in one of the lower seasons. This would make sense since people just spent money on Christmas and other holidays.
Overall, good post.
-Ryan Stefancin
I find this post very interesting because out of all the months in the year November and December are most commonly known as the holiday months and thats the people are most likely to spend the most money. This is a good sign for the economy because it is showing that people are not spending as much money on average. Covid not being as prominent allows people to leave the house and work instead of being in the house all day buying things online.
Ever since the Covid-19 pandemic hit the US in early 2020, the Federal reserve dropped the federal funds rate from 1.58% in February 2020 to 0.05% in April 2020, a fall of 153 basis points, an act of bringing forth expansionary monetary policy. However, as one might imagine, a cost of borrowing so low led to incredible consumer spending, and allowed businesses to leverage their activities significantly.
Now that the proverbial music has stopped, and the effective fed funds rate has increased to 4.33%, a rise of 428 basis points from April, the cost of borrowing has increased significantly, which means that consumers have greater incentive to save, instead of spending their money, and firms are now more wary of taking on debt. This deflationary turn in monetary policy, coupled with decreasing consumer confidence (public sentiment overwhelmingly believes that the US is heading into a recession), leading to a completely understandable fall in consumer spending.
I believe that this turn is one for the better, due to the soaring inflation rates that we experienced in the months since the pandemic and the stimulus cheques, caused by the rampant demand-pull inflation that was seen in the US.
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