US consumer spending at its peak!

The big economic news of the day was that real consumer spending rose in April by the most in three months, helping to push the S&P 500 Index to its biggest weekly gain since March. At first glance, this may be seen as a sign of resilience on the part of consumers despite the highest inflation rates since the early 1980s. Perhaps, but it’s not encouraging that consumers are having to dig deeper into their pockets to finance that spending.
Commerce Department data showed purchases of goods and services surged 0.7% in April from March after adjusting for higher prices. Over the past year, only the 1.5% gain in January was bigger.
Such strength should temper talk of an imminent recession, especially because consumer spending accounts for about two-thirds of the economy. What’s worrisome is that the personal saving rate took another big dip, dropping below 5% for the first time since 2009.
The divergence between spending and saving suggests we may be witnessing “the last hurrah” in the strong consumer narrative. It’s not hard to imagine consumers, watching their savings being whittled down at the same time that stock and bond markets are delivering heavy losses, deciding it’s time to take a break from shopping for a while.
JPMorgan Chase & Co estimates that US household wealth has plunged at least $5 trillion since the start of 2022 and could reach $9 trillion by the end of the year. And it’s not as if wages are keeping up with either inflation or spending. The Commerce Department data also showed that personal incomes rose 0.4% in April, decelerating from 0.5% in March and 0.6% in February.
“Call it defying gravity or call it denial, it is hard to imagine consumption can continue to grow faster than income forever,” FHN Financial economist Chris Low said.
US corporate profits fell in the first quarter by the most in two years, and employers are don’t seem to be as willing to shell out big raises to keep or attract talent in a slowing economy.
“We’ve reached a level of wage inflation where employers are going to say, ‘I’ve done as much as I can,’” Jonas Prising, chief executive officer of ManpowerGroup, the ilwaukee-based staffing company that serves more than 100,000 clients worldwide, told Bloomberg News. “‘My consumers and customers aren’t going to accept me passing these costs on any further, so we need to start to mitigate them.’”
It’s true that while the saving rate may be down, overall savings are at record highs, which should temper concern about the consumer.

—Bloomberg