US Spending Surge
US consumer spending rose in January due to an increase in wages and salaries. The increase of 1.8% was the highest since March 2021 and outperformed the predicted 1.3% increase. Spending was likely caused by seasonal fluctuations at the start of the year and a cost of living adjustment for more than 65 million Social Security beneficiaries, which increased income. Purchases of long-lasting manufactured goods, such as motor vehicles, household furnishings, and equipment, increased as well as spending on dining out and recreation. The personal consumption expenditures (PCE) price index rose by 0.6% in January, the largest increase since June 2022, and the PCE price index increased by 5.4% in the 12 months t. The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.5%. Financial markets are expecting another increase in June. Personal income increased by 0.6%, the majority of which is a result of strong wage growth. Consumers increased their savings while spending, as the saving rate increased to 4.7%, the highest in a year. The Fed is expected to deliver two additional rate increases of 25 basis points in March and May.
https://www.aljazeera.com/economy/2023/2/24/us-consumer-spending-surges-in-january-inflation-heats-up
4 comments:
Great post! One of the only things keeping the US economy from dramatically falling in my opinion is the amount Americans consume. It is crazy how inelastic goods and services have been, it feels like Americans sometimes will buy some products regardless of the price. I am curious to see when Americans finally slow down on their spending habits because we will see a reaction from the markets as stock values will tank. When interest rates rise, I'll be curious to see how low GDP falls along with inflation.
The paragraph highlights several positive trends in the US economy, including a rise in consumer spending, which was driven by an increase in wages and salaries. This increase was higher than predicted and could be a sign of a growing economy. The rise in spending was also seen in durable manufactured goods, dining out, and recreation, which suggests that people are more willing to invest in their quality of life. Furthermore, the increase in personal income and the higher savings rate indicate that people are not only spending more but also saving more. This trend could have long-term positive effects on the economy by increasing investment and encouraging financial stability.
Despite the positive trends highlighted in the paragraph, there are also several negative factors to consider. The rise in consumer spending may be a result of seasonal fluctuations, which could be temporary and not sustainable in the long term. Additionally, the rise in the PCE price index could be an indication of rising inflation, which could have negative effects on the economy. The Fed's decision to raise its policy rate could also lead to higher borrowing costs for consumers and businesses, which could slow down economic growth. Finally, while the increase in personal income and the savings rate is positive, it is unclear if this trend will continue or if it is a short-term reaction to recent economic events.
Based on your post and the PCE figure you provided, it seems like inflation may be starting to slow. While consumer spending did rise in January, the Fed rate hikes appear to be taking into effect as a 0.6% increase in PCE is very slight. Given the Fed's goal of 2% inflation, I'm not surprised the Fed is going to continue increasing interest rates.
It is very concerning to see high consumer spending given the current state of the market. With inflation still high I think we can definitely expect the Fed to continue with interest rate hikes in attempt to achieve their "soft landing".
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