Consumer spending in the US affected by high inflation

American consumers took a breather in November, a month after a sharp spike in spending over the Thanksgiving period, but that pause risks becoming longer if Americans slow down spending more amid the highest inflation in decades. and the omicron variant.

Purchases of goods and services, adjusted for rising prices, showed little change after a solid rise of 0.7% in October. The government’s figures were the highlight of a series of economic reports released Thursday before the end-of-the-year holidays, which showed increases in durable goods orders, new home sales and consumer confidence.

Behind the spending figures there are a series of countercurrents. On the news of supply chain problems, many Americans started their Christmas shopping earlier than usual this year, helping to explain the strong advance from the previous month.

But consumers also face the fastest inflation in decades. Each trip to the grocery store or gas station consumes more of your wages, leaving less for discretionary purchases. While the new omicron variant of COVID-19 threatens to halt the incipient rebound in spending on services.

The report showed that Americans are spending more on commodities amid the rebound in prices. Money spent on housing and utilities increased last month, as did expenditures on gasoline and food. The data showed that inflation-adjusted service spending rose 0.5%, the biggest rise in three months, while goods outlays fell 0.8%, the first decline since July.

The price gauge for personal consumption expenditures, which the Federal Reserve uses for its 2% inflation target, rose 0.6% from the previous month and 5.7% from November 2020, the highest reading since 1982.

The data comes after a restrictive turn by Fed officials, who have been under pressure to crack down on price overheating. Last week, the central bank announced that it will accelerate the end of its asset purchase program, and new interest rate projections indicated that policymakers are in favor of increasing borrowing costs by three-quarters of a point. percentage next year.

Consumers are saving less amid rapid price increases. Adjusted for inflation, disposable personal income, or after-tax income, fell 0.2%, the fourth consecutive decline. The savings rate, personal savings as a percentage of disposable income, fell to 6.9%, the lowest since December 2017.

Although federal stimulus has waned, a number of companies have increased salaries this year to attract and retain talent amid widespread difficulties in hiring. In November, wages and salaries rose 0.5%, after a 0.8% increase in October, the report showed.

The underlying price index, which excludes food and energy, increased 0.5% from the previous month and 4.7% from the previous year, the largest increase since 1983.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he lowered his forecast for increased consumer spending in the fourth quarter because “the wave of omicron COVID seems to be affecting spending in restaurants”. The firm now estimates that disbursements will increase at an annualized rate of 5.5% in the period, below the previous forecast of 6%, according to a note on Thursday.